so: 


'£X<£ 


MONET 


BY 


CHAELES  MORAN. 


"  The  two  greatest  inventions  of  the  human  mind  are  writing  and 
money,— the  common  language  of  intelligence,  and  the  common  lan 
guage  of  self-interest."  MARQUIS  DB  MIBABEAU. 


YORK : 
D.    APPLETON    AND    COMPANY, 

443    &   445    BPwOADWAY. 
LONDON:    16   LITTLE  BRITAIN. 

1863. 


ENTERED,  according  to  Act  of  Congress,  in  the  year  1863,  by 

D.  APPLETON  &  CO., 

la  the  Clerk's  Office  of  the  District  Court  of  the  United  States  for  the 
Southern  District  of  New  York. 


PREFACE. 


NOTES  originally  commenced  to  be  used  in  discus 
sions  at  the  meetings  of  the  Society  for  the  Advance 
ment  of  Political  and  Social  Science,  lately  organized 
in  this  city,  gradually  assumed  the  form  of  the  present 
work,  which  is  an  attempt  to  analyze  and  discuss 
the  subject  of  Money,  in  its  most  important,  practical 
phases,  more  fully  than  has  been  done  in  any  of  the 
works  that  have,  as  yet,  fallen  into  the  hands  of  the 
writer. 

The  conclusions  arrived  at  appear  to  explain  and 
reconcile  all  the  anomalies  that,  heretofore,  have  ren 
dered  money  so  vexed  a  subject.  The  views  expressed 
in  this  work  in  regard  to  the  relative  value  of  gold  and 
silver,  and  the  effects  of  the  large  influx  of  gold  from 
new  mines,  were  published  in  the  local  press  as  early 
as  1851.  Every  prediction  then  made  on  this  subject 
has  been  fully  realized,  while  not  one  of  those  made 
by  the  partisans  of  the  theory  of  the  future  deprecia 
tion  of  gold  and  appreciation  of  silver  has  been  ful 
filled.  The  conclusions  in  regard  to  the  effect  on  prices, 
of  bank-note  issues,  were  arrived  at  and  communicated 

M  9790 


IV  PREFACE. 

to  friends  long  before  reading  the  able  works  of  Fullar- 
ton  and  Tooke,  in  which  similar  views  are  maintained. 
This  is  mentioned  here,  not  so  much  to  claim  the  merit 
of  originality  for  these  conclusions,  as  with  a  view  to 
obtain  for  them  the  weight  due  to  conclusions  arrived 
at  by  different  parties,  examining  the  same  subject  from 
different  points  of  view. 

The  constantly  increasing  division  of  labor  daily  in 
creases  the  exchanges  of  commodities  and  services,  in 
which  money  plays  so  important  a  part.  The  subject 
of  money  is,  therefore,  supposed  by  the  writer  to  be  of 
sufficient  general  interest  to  warrant  the  publication 
of  the  present  work.  If  it  shall  aid  in  dissipating  any 
of  the  numerous  errors  and  prejudices  so  long  connected 
with  money,  and  thus  increase  the  power  of  this  in 
strument  to  further  the  well-being  and  progress  of 
humanity,  the  object  of  the  writer  will  be  attained  and 
his  labors  amply  compensated. 

NEW  YORK,  April  20,  1863. 


CONTENTS. 


CHAPTER  I. 

Materials  used  as  money— Coins  of  antiquity  and  of  the  middle  ages— Debase 
ment  of  money  in  the  middle  ages, 7 

CHAPTER  II. 

Banks  of  deposit— Banks  of  circulation— Opinions  of  the  economists  on  the  sub 
ject  of  money— Principles  that  control  money— Money  is  a  representative— is  con 
stantly  mistaken  for  the  things  it  represents— Expense  of  coinage— Precious  metala 
both  capital  and  representatives  of  capital— Money  the  measure  of  value  of  all 
things  except  itself— To  perform  successfully  its  indispensable  functions,  money 
must  be  universally  accepted— Coining  money  does  not  establish  its  value— The 
most  important  function  of  money  is  to  represent  services  rendered,  .  .  15 

CHAPTER  III. 

Ideas  of  various  authors  in  regard  to  money — what  regulates  value — Opinions 
of  economists  in  regard  to  value  of  money— Effect  of  increased  productions  of  the 
precious  metals  on  the  value  of  money, 31 

CHAPTER  IV. 

Opinions  of  economists  and  others  in  regard  to  relative  value  of  gold  and  silver 
— Power  of  governments  to  regulate  relative  value  of  gold  and  silver— Examples  in 
the  United  States  and  in  England— Opinion  of  Sir  Isaac  Newton— Relative  value 
of  gold  and  silver  at  different  epochs — Cause  of  appreciation  of  gold  and  deprecia 
tion  of  silver— Opinions  of  Michel  Chevalier  in  regard  to  effect  of  increased  pro 
ductions  of  gold — Variations  in  value  of  gold  and  silver  since  the  discovery  of 
Californian  and  Anstral'an  gold  mines— Exports  of  silver  from  France — Error  of 
Great  Britain  in  demonetizing  gold  in  India, 39 

CHAPTER  V. 

An  increased  production  of  gold  cannot  appreciate  the  value  of  silver — Opinions 
ofM'c-hel  Chevalier  and  other  economists  in  regard  to  the  relative  value  of  gold 
and  silver — Gold  coins  without  fixed  vnlues— Relative  production  of  gold  a;id  silver 
—Belgium  rcadopts  gold  after  demonetizing  it— Both  metals  advantageous  as 
money — Neither  can  well  be  dispensed  with— Disadvantages  of  a  sirgle  standard — 
Exchange  of  silver  for  gold  in  France — Conclusions  in  regard  to  metallic  money — 
Proper  remedy  for  variations  in  relative  value  of  gold  and  silver— Proposed  uni 
versal  system  of  coinage, 56 


Vi  CONTENTS. 

CHAPTER  VI. 

Paper  money— Difficulty  in  the  way  of  its  universal  use— Government  paper 
money  in  France— Law's  Bank— Assignats— Government  paper  money  in  Russia— 

In  the  United  States, 70 

CHAPTER  VII. 

Bank  issues  in  Scotland— In  the  United  States, 91 

CHAPTER  VIII. 

Principles  governing  paper  money— Money  as  used  in  modern  civilized  commu 
nities—money  need  not  possess  intrinsic  value— Money  redeemed  by  commodities 
and  services— Government  paper  money  cannot  perform  the  proper  functions  of 
money— Bank  notes  preferable  to  Government  paper  money— Money  must  repre 
sent  existing  commodities  and  services— Beneficial  functions  of  the  banks— Banks 
do  not  make  several  issues  of  notes  based  on  same  property— demand  for  money 
by  commerce  and  industry  not  unlimited, 107 

CHAPTER  IX. 

Effects  of  volume  of  currency  on  prices— Effects  of  American  mines  in  16th  cen 
tury— Effects  of  issues  of  bank  notes  in  England— Speculations  not  caused  by  bank 
expansions — Bank  expansions  only  necessary  to  arrest  fall  of  prices  after  a  specu 
lative  movement— effects  of  a  limitation  of  the  currency  on  its  value— limitation  of 
issues  of  Bank  of  England— momentary  effects  of  limitation  of  issues  and  of  bank 
contractions — specie  redemption  of  bank  notes — Prices  cannot  rise  so  as  to  stop 
exports  of  commodities  while  they  exist  in  excess  of  local  wants — effects  of  a  depre 
ciated  paper  currency  on  exports  of  commodities— Specie  exports — Fears  of  inade 
quate  supply  of  gold  and  silver  groundless— Money  only  sought  as  means  of  sup 
plying  wants — English  "  currency  principles  " — Prices  not  affected  by  variations  in 
the  volume  of  the  currency  as  long  as  the  community  have  full  confidence  in  it — 
Huskisson's  views  in  regard  to  money, 126 

CHAPTER  X. 

Paper  money  as  yet  far  from  perfect— will  become  the  universal  means  of  effecting 
exchanges— Bank  of  England— Suspension  of  1696— Runs  on  the  Bank  in  1720  and 
1745— Suspension  of  1797 — effects  of  suspension  and  increased  issues  on  prices — 
Price  of  gold  and  issues  of  bank  notes  during  suspension— Cause  of  rise  of  prices 
during  suspension,  and  of  fall  of  prices  after  resumption— Crisis  of  1825— Bank  act 
of  1844— Crisis  of  1847  and  first  suspension  of  act  of  1844— Crisis  of  1857  and  second 
suspension  of  act  of  1844, 154 

CHAPTER  XL 

Volume  of  currency  theory—  Credit  performs  the  functions  of  money— not  however 
always  currency— Circulation  and  loans  of  Bank  of  England  from  1821  to  1847— 
Comments  of  London  Economist,  203 

CHAPTER  XII, 

Volume  of  bank  issues  self-regulating— Banks  of  issue — Banks  of  circulation — 
Effects  of  bad  harvests  on  money  market — Duty  of  banks — Prices  greatly  de 
pendent  on  confidence— London  and  New  York  clearing  houses— Bank  notes  can 
successfully  replace  coin  in  all  transactions, 213 


MONET, 


CHAPTER  I. 

A  CORRECT  appreciation  of  the  functions  of  money 
and  of  the  natural  laws  that  govern  it,  is  of  vast  impor 
tance  to  humanity,  from  its  universal  use  in  the  exchanges 
of  commodities  and  services  ;  exchanges  becoming  each 
day  more  numerous  and  indispensable  in  consequence 
of  the  constantly  increasing  division  of  labor. 

Many  things  have  been  used  at  different  times  as 
money :  cowrie  shells  in  Africa ;  wampum  by  the 
American  Indians  ;  cattle  in  ancient  Greece.  The 
Carthaginians  used  leather  as  money,  probably  bearing 
some  mark  or  stamp.  Frederic  II,  at  the  siege  cf 
Milan,  issued  stamped  leather  as  money.  In  1360,  John 
the  Good,  King  of  France,  who  was  taken  prisoner  by 
the  celebrated  Black  Prince  and  sent  to  England  until 
ransomed,  also  issued  leather  money,  having  a  small 
silver  nail  in  the  centre.  Salt  is  the  common  money  in 


8  MONEY. 

Abyssinia ;  codfish  in  Iceland  and  Newfoundland. 
".Living  mpnQy^\ graves  and  oxen,  passed  current  with 
the  Anglo-Saxons,  in  payment  of  debts.*  Adam  Smith 
says  that  in"  his  day  there  was  a  village  in  Scotland 
where  it  was  not  uncommon  for  workmen  to  carry  nails 
instead  of  money  to  the  baker's  shop  and  the  alehouse. •(• 
Marco  Polo  found,  in  China,  money  made  of  the  bark 
of  the  mulberry  tree,  bearing  the  stamp  of  the  sovereign, 
which  it  was  death  to  counterfeit.  Tobacco  was  gene 
rally  used  as  money  in  Virginia  up  to  1660,  fifty-seven 
years  after  the  foundation  of  that  colony.  In  1641  the 
Legislature  of  Massachusetts  enacted  that  wheat  should 
be  received  in  payment  of  all  debts  ;  and  the  Conven 
tion  in  France,  during  the  Revolution,  on  a  proposition 
of  Jean-Bon-Saint  Andre,  long  discussed  the  propriety 
of  adopting  wheat  as  money,  as  the  measure  of  value 
of  all  things.^  Platina  was  coined  in  Russia  from  1828 
to  1845.§  But  the  metals  best  adapted  and  most 
generally  used  as  coin  are  copper,  nickel,  silver,  and 
gold  ;  the  two  first  being  now  used  for  coins  of 
small  value,  to  make  change,  and  the  two  latter,  com 
monly  designated  "  the  precious  metals,"  as  measures 
of  value  and  as  legal  tenders.  On  the  continent  of 
Europe,  a  composition  of  silver  and  copper,  called 
billon,  has  long  been  used  for  small  coins,  which  are 
made  current  at  a  much  higher  value  than  that  of  the 
metals  they  contain.  In  Qhina,  Sycee  silver  is  the 
principal  currency,  and  is  merely  ingot  silver  of  an  uni 
form  fineness,  paid  and  received  by  weight.  Spanish 

*  Westminster  Review,  January  1,  1848. 

f  Wealth  of  Nations,  vol.  i,  p.  31. 

\  Die.  d'Economie  Politique,  Paris,  Monnaie.  §  Idem. 


MONEY.  9 

dollars  also  circulate  there,  but  only  after  they  have  been 
essayed  and  stamped  as  proof  that  they  are  of  the 
standard  fineness.* 

As  Asia  Minor  produced  gold,  its  earliest  coinage 
was  of  that  metal.  Italy  and  Sicily  possessing  copper, 
bronze  was  first  coined  there.  Herodotus  says  the 
Lydians  were  the  first  people  known  to  have  coined  gold 
and  silver.  They  had  gold  coins  at  the  close  of  the 
ninth  century  B.  c.  ;  Greece  Proper  only  at  the  close 
of  the  eighth  century  B,  c.  Servius  Tullius,  King  of 
Kome,  made  the  pound  weight  of  copper  current  money. 
The  Romans  first  coined  silver  281  B.  c.,  and  gold 
207  B.  c. 

At  the  time  of  the  invasion  of  Britain  by  Csesar, 
the  ancient  Britons  had  coins  of  tin,  iron,  brass,  and 
gold.  The  Anglo-Saxons  coined  silver  and  brass,  but 
the  Norman  monarchs  rejected  the  latter,  and  fur  a  long 
time  silver  was  the  sole  metal  coined.  William  the 
Conqueror  issued  uo  coins  but  silver  pennies  or  "  ster 
lings."  Henry  III  first  coined  gold,  in  pennies  weigh 
ing  rloth  of  a  pound  tower,  which  passed  for  20d. 
Henry  VII  first  coined  silver  shillings.  Silver  half 
pence  and  farthings  were  coined  from  the  time  of 
Edward  I  to  Edward  VI.  Their  small  size,  particu- 

*  "  There  is  no  coined  silver  or  gold  currency  in  China  ;  the  only  money 
taken  being  a  copper  coin,  called  cash,  of  small  value,  1,700  representing  a 
Spanish  Carolus  dollar.  Silver,  therefore,  in  bulk,  at  its  pure  touch  of  100  per 
cent.,  takes  the  place  of  a  coined  measure  of  value,  being  divided  into  the 
Government  standard  weights  called  tael,  mace,  cash,  candareem,  each 
having  a  decimal  proportion  to  the  other ;  and  thus  a  nominal  money  is 
created,  although  more  properly  these  terms  are  merely  'denominations  of 
weight.' "  (Report  of  Mr.  Consul  Robertson  on  the  trade  of  the  port  of 
Shanghai  for  the  year  1855,  quoted  in  Tooke's  History  of  Prices,  vol.  vi, 
p.  679.) 

1* 


10  MONEY. 

larly  after  the  reduction  of  the  weight  of  the  silver 
coins,  caused  them  to  be  discontinued  ;  and  James  I 
directed  farthing  tokens  of  brass  and  copper  to  be 
struck,  but  they  were  of  such  inferior  value  that  they 
soon  fell  into  disuse.  The  first  copper  coinage  in  Eng 
land  was  in  1672,  under  Charles  II,  who  also  coined 
tin  in  1684.  James  II  attempted  to  give  currency  to 
gun  metal  and  pewter,  but  the  attempt  was  soon  given 
up.  Henry  VII,  in  1489,  coined  the  first  sovereigns, 
of  gold  23  carats  3£  fine.  Henry  VIII,  in  1544,  coin 
ed  half,  quarter,  and  eighth  sovereigns,  of  the  present 
standard  of  22  carats  fine.  Charles  II,  in  1675,  coined 
the  first  guinea,  called  thus  because  made  of  African 
gold. 

In  1797,  during  the  suspension  of  the  Bank  of  Eng 
land,  the  deficiency  of  the  silver  coinage  was  so  great  in 
England,  that  it  was  attempted  to  be  supplied  by  the 
issue  of  Spanish  dollars,  stamped  with  the  mark  of  the 
king's  head.  They  were  issued  at  4s.  9c?.,  but  were 
called  in  again  in  the  course  of  the  year  ;  but  the  prac 
tice  was  resumed  at  various  periods  during  the  war.  In 
1811  the  Bank  of  England  was  permitted  to  strike  and 
issue  silver  tokens,  to  pass  current  for  5s.  6d.}  3s.,  and 
Is.  6d* 

The  sovereigns  of  Europe  extensively  falsified  the 
moneys  they  coined,  by  diminishing  their  weight  and  the 
fineness  of  the  metal  they  were  made  of,  to  facilitate 
the  liquidation  of  their  debts.  Under  Servius  Tullius, 
550  B.  c.,  the  as  or  pondo  contained  a  Koman  pound 
of  copper.  In  175  B.  c.  it  had  been  reduced  to  |  oz. 
or  aV th  part  of  its  original  weight.  The  livre  in  France, 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  i,  p.  168. 


MONEY.  11 

under  Charlemagne,  contained  12  ounces  of  pure  silver, 
but  was  gradually  reduced  by  his  successors,  particu 
larly  by  Philip  le  Bel  *  and  by  the  first  sovereigns  of 
the  house  of  Yalois.  John  the  Good  made  seventy-one 
alterations  in  the  value  of  the  coin  in  nine  years,  alter 
nately  increasing  and  decreasing  the  quantity  of  pure 
metal  it  contained.  For  example,  by  an  edict  of  Novem 
ber  27,  1359,  the  marc  of  pure  silver  was  ordered  to  be 
coined  into  18  livres  ;  by  an  edict  of  January  22,  1360, 
into  54  livres  ;  March  21,  1360,  into  125  livres  ;  March 
31,  1360,  into  12  livres  ;  April  25,  1360,  into  16  livres  ; 
May  28,  1360,  into  12  livres  ;  June  29,  1360,  into  20 
livres  ;  &c.,  &c.f  To  appreciate  fully  the  effects  of 
these  fluctuations  in  the  value  of  the  coin,  it  must  be 
remembered  that  after  a  currency  has  been  for  a  time 
depreciated,  as  much  injustice  is  done  by  raising,  as  was 
previously  done  by  depressing  its  value.  Philip  le  Bel 

*  "In  January,  1311,  a  new  debasement  of  the  coin,  which  lasted 
until  September,  1313,  reduced  the  livre  to  frs.  13.66.  This  standard  was 
followed  by  another  that  raised  the  livre  to  frs.  18.37,  which  was  establish 
ed  at  the  moment  when  an  extraordinary  subsidy  was  to  be  levied,  to  which 
Philip  le  Bel  became  entitled  by  the  custom  of  those  times,  on  the  occasion 
of  his  eldest  son's  being  made  a  knight.  Philip  le  Bel,  at  his  death,  left 
the  livre  at  about  f^ths  of  its  value  at  the  moment  of  his  accession  to  the 
throne,  but  in  the  mean  time  he  had  caused  it  to  alter  in  value  twenty-two 
times  in  the  last  nineteen  years  of  his  reign !  He  had  designed  to  reestab 
lish  the  finances,  whereas  he  only  succeeded  in  destroying  many  private 
fortunes,  in  causing  the  royal  authority  to  fall  into  contempt,  in  exciting 
intestine  hatreds,  and  in  producing  a  bloody  riot  in  the  streets  of  Paris." 
(Natalis  Wailly,  Researches  on  the  Monetary  System  of  St.  Louis,  quoted 
in  the  Journal  des  Economistes  of  Paris,  September,  1862.) 

Dante  says  of  Philip  le  Bel : 

"  La  si  vedra  il  duol  che  sopra  Senna 
Induce,  falseggiando  la  moneta."  (Par.  xix.) 

f  E.  Cartier,  Revue  Numismatique  of  Paris,  1838,  pp.  104-108. 


12  MONEY. 

coined  gold  22  carats  fine  ;  Philip  de  Valois  coined  it 
23,  22,  and  21  carats  fine  ;  John  the  Good.  21  and  18 
carats  fine.  Charles  V,  surnamed  the  Wise,  restored 
the  coin  to  a  fixed  weight  and  fineness,  under  the  advice 
of  Nicole  Oresme,  Bishop  of  Lisieux,  who  wrote  an 
admirable  treatise,  published  both  in  Latin  and  French, 
on  the  origin,  nature,  functions,  and  mutations  of  money, 
in  which  he  says  :  "  If  the  truth  were  not  maintained  in 
regard  to  the  weight  and  fineness  of  the  coin,  it  would 
be  a  vile  falsehood  and  a  fradulent  deception.  It  is  just 
and  proper  for  a  sovereign  to  condemn  and  punish 
false  coiners.  But  what  if  he  himself  commits  that 
which  it  Js  his  duty  to  punish  with  death  in  others  ? 
The  coin  does  not  belong  to  the  sovereign,  but  to  those 
who  possess  it.  Neither  sovereign  nor  state  has  the 
right  to  alter  the  value,  weight,  or  fineness  of  money. 
The  effigy  of  the  sovereign  or  the  stamp  on  the  coin  is 
a  proof  of  its  weight  and  quality.  A  sovereign  who 
alters  the  value  of  the  coin  in  weight  or  fineness  is  a 
liar,  commits  perjury,  and  bears  false  testimony."  *  The 
falsification  of  the  coin  was,  however,  continued  in 
France  till  the  beginning  of  the  reign  of  Louis  XV. 
The  reduction  of  the  livre  from  1497  to  1L02  was  from 
2,225  to  1,203  centigrammes  of  pure  silver.  In  17s  9 
the  livre  only  contained  y/g^ths  of  the  pure  silver  it 
contained  in  the  time  of  Charlemagne. 

In  England  the  coin  was  also  debased  by  the  sover 
eigns.  From  the  Conquest  to  the  present  time,  how 
ever,  all  the  English  silver  coins  are  of  the  standard 
of  11  oz.  2  dwts.  fine  and  18  dwts.  alloy,  except  for  the 
short  period  of  sixteen  years,  from  the  34th  Henry  VIII 

*  Journal  des  Economistes,  Paris,  September,  1862,  pp.  372,  373. 


MONEY. 


13 


to  the  2d  Elizabeth,  during  which  the  standard  was 
greatly  debased.  "  Henry  VIII  stands  recorded  with 
infamy  as  the  first  English  sovereign  who  debased  the 
sterling  fineness  of  the  coins."  *  The  shilling  of  Wil 
liam  the  Conqueror  contained  266  .-V  grains  tower 
or  249 J  grains  troy  of  pure  silver.  It  was  reduced 
by  Edward  VI,  in  1550,  to  21J  grains  tower  or  20 
grains  troy.  In  1552  it  was  made  to  contain  94-,-V 
grains  tower  or  88F4o  grains  troy.  The  English  mint 
used  the  tower  pound  until  the  18th  Henry  VIII, 
when  it  was  replaced  by  the  troy  pound,  which  has 
been  used  ever  since,  and  is  f  oz.  heavier  than  the 
tower  pound. 

The  following  table  exhibits  the  various  modifica 
tions  made  in  the  silver  coinage  of  England  : 


Standard,  _       Standard  £ 

[ver  coined 

per  pou  id 
Troj. 

Grains  Troy 
of  stanrtaH 
silver  in  one 
penny. 

Grains  Tror 
if  fine  silver  in 
one  penny. 

Conquest.  A.  D.  1066 
28  Edward  I,      "    1300 
18  Edward  III,  "    1344 

11  oz.  2  dwt. 

20*.  Orf. 
20    3 
22    2 

22* 

20.81 

20.55 
1863 

20          "               "    1346 

22    6 

20 

18.50 

25          "              "    1350 

25    G 

18 

16.65 

13  Hen  rv  IV,      "    1412 
4  Edward  IV,  "    1464 

80    0 
37    6 

15 
12 

13.87 
11.10 

18  Henry  VIII,  "    1526 
34          "              "    1543 

10  oz.  0  dwt. 

42    2i=45s.  Otf. 

48    0 

10 

9.87 
8.33 

36          "              "    1544 

6        0 

48    0 

10 

5  — 

37          '•              "    1545 

4        0 

48    0 

10 

3.  "3 

3  Edward  VI,   "    1549 

6        0 

72    0 

6f 

8.33 

4          "              "    1550 

3        0 

72    0 

6| 

1.67 

6                         u    1552 

11        1 

60    0 

8 

7.37 

1  Elizabeth,      "    1558 

11        2 

60    0 

8 

7.50 

43        "                "    16!)1 
56  Georee  III,    "    1816 

11        2 
11        2 

62    0 
64    0 

?! 

7.16 
6.727 

Pure  gold  is  said  to  be  24  carats  fine.  The  carat 
is  an  Abyssinian  weight  divided  into  4  grains,  and  the 
grains  into  quarters.  A  carat  grain  is  equivalent  to 


Ruding,  Annals  of  Coinage,  vol.  i,  p.  300. 


14  MONET. 

2^  dwts.  When  gold  coins  were  first  made  at  the 
English  mint,  the  standard  of  the  gold  put  in  them 
was  23£  carats  3J  grains  fine,  and  |  grain  alloy  ;  and  so 
it  continued  without  any  variation  to  the  18th  Henry 
VIII,  who  in  that  year  first  introduced  a  new  stand 
ard  of  22  carats  fine  and  2  carats  alloy.  Henry  VIII 
made  his  gold  coins  of  both  these  standards,  and  this 
practice  was  continued  by  his  successors  until  1633. 
From  that  period  to  the  present  time,  the  gold  of  which 
the  coins  of  England  have  been  made  has  invariably 
been  of  the  new  standard  of  22  carats  fine.  Standard 
gold  has  been  coined  in  England  since  1717  into  31.  17s. 
lOid.  per  oz.  By  the  act  of  1844,  the  Bank  of  Eng 
land  is  obligated  to  purchase  all  the  gold  bullion  and 
foreign  coins  of  standard  fineness  at  31.  17 s.  $d.  per  oz. 
The  debasement  of  the  coins  was  universal  during 
the  middle  ages.  In  Scotland,  previous  to  1296,  the 
pound  of  silver  was  coined  into  20  shillings.  In  1601, 
£36  or  720  shillings,  were  coined  out  of  the  same  quan 
tity.  The  gold  ducat  or  sequin,  when  first  coined  in 
Venice  in  1284,  was  equivalent  to  3  Italian  livres  ; 
to-day  it  would  be  worth  22  livres.  The  florin,  origi 
nally  a  gold  coin  of  the  value  of  about  10  shillngs 
sterling  ($2.50),  is  now  a  silver  coin  worth  about  20 
pence  sterling  (40  cents).  The  Spanish  coin  maravedi, 
in  1220  weighed  24  grammes  (370  grains  troy)  of  gold  ; 
it  is  now  a  small  copper  coin  equal  to  aVV  of  an  English 
penny.  The  Russian  rouble  of  1700  is  worth  2TVo  of 
the  roubles  of  1821. 


CHAPTEE  II. 

IT  was  the  constant  alteration  by  the  sovereigns 
of  the  weight  and  fineness  of  the  coins,  as  well  as  their 
depreciation  by  wear  and  by  clipping,  that  gave  rise 
to  the  ideal  money  of  account  of  the  banks  of  Venice, 
Genoa,  Amsterdam,  Hamburg,  &c.  These  institu 
tions  received  all  kinds  of  coin  on  deposit,  but  only 
credited  the  depositors  with  their  actual  weight  of 
fine  metal,  by  reducing  them  to  the  weight  and  fineness 
of  their  ideal  money  of  account.  These  moneys  of 
account  were  alone  received  in  payment  of  debts  due 
to  the  banks,  and,  for  a  long  time,  were  at  a  consider 
able  premium.  The  reason  for  this  premium  is  very 
evident  from  the  fact  that  the  general  average  value 
of  the  coins  circulating  in  Amsterdam  in  1609,  when 
the  Bank  of  Amsterdam  was  founded,  was  9  per  cent, 
below  their  standard  value.  *  The  certificates  of  de 
posit  issued  by  these  banks,  finally  suggested  the  use 
of  bank  bills  as  money.  The  first  bank  bills  that  cir 
culated  as  money  were  those  of  the  Bank  of  Stockholm, 
established  in  1668.  They  were  mere  receipts  for  coin 
deposited  with  the  bank,  but  by  a  law  of  1726,  they 
were  made  receivable  in  payment  of  all  bills  of  exchange. 

*  Encyc.  Britannica,  Money. 


16  MONEY. 

The  first  institution,  however,  that  was  legally  author 
ized  to  issue  bank  bills  payable  to  bearer  at  sight,  was 
the  Bank  of  England,  founded  in  1694. 

There  is  to-day  a  greater  difference  of  opinion  on 
the  subject  of  money,  than  on  almost  any  other  subject 
treated  of  by  the  economists.  Bastiat,  in  his  little 
pamphlet  entitled  "  Maudit  Argent,"  makes  an  econo 
mist  say  :  "  I  curse  money  because  it  is  constantly  con 
founded  with  wealth,  and  from  this  confusion  arise  errors 
and  calamities  without  number.  I  curse  it  because  its 
functions  are  ill  understood  and  very  difficult  of  com 
prehension.  I  curse  it  because  it  confuses  all  ideas, 
causes  the  means  to  be  mistaken  for  the  end,  the  ob 
stacle  for  the  cause,  alpha  for  omega  ;  because  its 
presence  in  the  world,  beneficial  in  itself,  has  introduced 
a  false  notion,  a  begging  of  the  question,  a  fallacious 
theory  that,  in  its  numerous  ramifications,  has  impov 
erished  man,  and  encrimsoned  the  earth  with  blood. 
I  curse  it  because  I  feel  myself  incapable  of  wrestling 
against  the  errors  to  which  it  has  given  birth,  other 
wise  than  by  a  long  and  fastidious  dissertation  to  which 
no  one  will  listen." 

To  appreciate  clearly  the  functions  of  money  and 
the  natural  laws  that  govern  it,  it  becomes  necessary 
to  establish  a  few  preliminary  principles. 

Wealth  and  utility  are  synonymous  terms — so  are 
value  and  capital.  But  wealth  and  capital — utility 
and  value — are  not  synonymous  terms,  although  con 
stantly  used  as  such  by  most  persons.  It  is  not  the 
utility  of  a  thing  itself  that  constitutes  its  value,  but 
the  usefulness  (not  the  amount)  of  the  human  labor 
and  intelligence  incorporated  in  the  thing  at  the  time 


MONEY.  17 

when  it  is  sold.  Water  is  indispensable  to  man,  and 
yet  water  has  actually  no  value,  notwithstanding  its 
great  utility.  But  the  labor  of  bringing  water  from  a 
distance  to  the  hands  of  those  who  need  it,  has  to  be 
remunerated,  and  this  often  gives  value  to  water.  In 
such  a  case,  the  price  paid  for  the  water  is  the  mere 
remuneration  of  the  human  labor  incorporated  in  the 
water,  and  thus  saved  to  the  purchaser.  The  water 
itself  is  one  of  the  innumerable  bounties  bestowed  on 
man  by  the  Creator,  all  of  which  ever  remain  gratui 
tous,  no  matter  through  how  many  hands  they  may  pass, 
except  when  human  monopolies,  the  fruit  of  human 
laws,  intervene. 

The  labor  incorporated  on  things,  and  thus  saved  to 
those  who  acquire  them,  is  what  constitutes  value  or 
capital.  Nothing  is  capital  but  the  existing  results  of 
previous  labor  that  can  contribute  to  man's  enjoyment 
and  well  being.  This  analysis  of  capital  shows  the 
correctness  of  the  theory  of  Bastiat,  that  all  exchanges 
are  mere  exchanges  of  services. 

Money  is  not  capital,  but  a  mere  representative  of 
capital,  although  the  material  of  which  it  is  made  may 
be  capital  when  not  used  as  money.  Capital  is  sought 
with  a  view  to  be  consumed  or  retained,  whereas  money 
is  only  sought  as  means  of  obtaining  useful  commodities 
and  services  ;  in  other  words,  men  seek  money  only  be 
cause  it  is  universally  accepted  in  exchange  for  com 
modities  and  services,  which  it  therefore  represents. 
But  representatives  are  constantly  confounded  with 
the  things  they  represent,  and  this  is  particularly 
the  case  with  gold  and  silver  and  paper  money.  In 
consequence  of  having  been  at  first  used  as  commodi- 


18  MONEY. 

ties,  at  their  value  for  consumption,  although,  now  gen 
erally  used  as  representatives  of  capital,  as  means  of 
obtaining  commodities  and  services,  the  precious  metals 
are  still  generally  looked  upon  as  capital  itself — in  fact, 
as  the  only  true  capital*  This  is  carried  to  such  an 
extent  that  we  are  elated  at  an  arrival  of  $1,000,000 
in  coin  from  any  quarter  ;  while  we  are  alarmed  at  an 
arrival  of  $5,000,000  in  commodities  indispensable  to 
the  welfare  of  the  community,  because  we  fear  it  may 
lead  to  the  exportation  of  a  portion  of  our  dearly 
prized  gold  and  silver,  in  exchange  for  the  commodi 
ties  ;  and  yet  it  is  evident  that  the  only  use  of  coin  or 
money  is  to  obtain  with  it  the  things  useful  to  human 
ity  !  Of  what  use  is  money  where  there  are  no  com 
modities  or  services  to  exchange  ?  The  idea  that  money 
alone  is  real  capital  or  wealth,  has  undoubtedly  dimin 
ished  the  general  welfare  and  progress  of  humanity,  by 
diverting  its  attention  from  industry,  the  sole  source 
of  all  capital.  The  same  idea  originated  the  celebrated 
mercantile  system, f  first  introduced  by  the  Emperor 

*  "Gold  and  silver  being  useful  for  other  purposes  besides  serving  for 
currency,  have  a  certain  intrinsic  value,  and  for  that  reason  alone  they  are, 
to  a  certain  extent,  wealth  in  themselves.  Many  persons  who  cannot  dis 
criminate  the  simple  ideas  involved  in  one  complex  one,  entertain  very 
erroneous  opinions  on  this  subject,  and  are  apt  to  consider  money  and 
wealth  as  convertible  terms.  Gold  and  silver,  however,  derive  their  chief 
value  from  their  peculiar  fitness  to  form  a  currency,  and  they  are  less  use 
ful  for  general  purposes  than  almost  any  other  metal."  (Macleod,  Theory 
and  Practice  of  Banking,  vol.  i,  p.  35.) 

f  "  According  to  the  crude  ideas  that  were  generally  received  about  a 
century  ago,  gold  and  silver  were  almost  universally  considered  to  be  near 
ly  the  only  species  of  wealth,  and  it  was  considered  to  be  the  true  policy  of 
every  country  to  encourage,  by  every  means  in  its  power,  the  influx  of 
bullion,  and  to  discourage  its  export ;  and  most,  if  not  all,  of  th^e  European 
nations  have  gone  so  far,  at  one  time  or  another,  as  to  prohibit  its  export. 


MONEY.  19 

Charles  V,  iii  the  relations  between  Spain  and  her 
colonies,  and  subsequently  introduced  by  Colbert  in  the 
relations  between  nations  ;  a  system  most  injurious  to 
all,  and  yet  gradually  adopted  by  all  nations,  and  still 
retained  by  them  to  a  greater  or  lesser  extent. 

It  is  evidently  this  idea,  that  gold  and  silver  are 
the  only  true  wealth,  that  induced  England,  since  the 
18th  Charles  II,  to  coin  the  precious  metals  without 
charge  to  the  owners  of  the  bullion  deposited  at  the 
mint — a  custom  which  has  most  improperly  become 
general  among  nations  ;  for  coining  money  is  a  service 
rendered  to  the  owners  of  bullion,  who  should,  there 
fore,  bear  the  expense,  and  not  the  community  at  large. 
Mr.  Mushet,  in  his  evidence  before  a  committee  of  the 
House  of  Lords  in  1819,  stated  that  gold  could  be  coin 
ed  at  the  English  mint  for  one  half  of  one  per  cent., 
and  silver  probably  for  one  and  a  half  per  cent.  In 
France  the  expense  of  coining  has  been  reduced  for 
gold  to  6  francs  for  every  3,100  francs,  or  0.193  per 
cent.;  for  silver,  to  75  centimes  for  every  100  francs,  or 
£  per  cent.  In  Russia  it  costs  TW  per  cent,  for  gold  and 

The  profit  of  foreign  commerce  was  estimated  solely  by  the  quantity  of 
gold  and  silver  it  brought  into  the  country ;  and  the  theory  of  commerce 
seemed  to  be  reduced  to  a  general  scramble  among  all  nations,  to  see 
which  could  draw  to  itself  most  gold  and  silver  from  the  others.  Accord 
ing  to  this  theory,  the  gain  of  one  party  was  the  loss  of  the  other ;  every 
article  produced  in  another  country,  and  imported  into  this  one,  was  con 
sidered  a  direct  loss  to  the  country.  This  was  what  was  called  the  mercan 
tile  or  commercial  system." 

"  So  far  from  the  principle  of  the  mercantile  theory  being  true,  that 
gold  and  silver  are  the  most  profitable  and  desirable  object  of  import,  the 
direct  reverse  is  unquestionably  true,  that  gold  and  silver  are,  of  all  objects 
of  commerce,  the  most  unprofitable."  (Macleod,  Theory  and  Practice  of 
Banking,  vol.  i,  pp.  297-299.) 


20  MONEY. 

2TVo  per  cent,  for  silver.*     In  the  United  States  f  the 
estimated  expense  of  coinage  is  : 

At  Philadelphia,  2TY7  per  cent.,  all  metals  included. 

Ne w  Orleans,  6  A8,         "  "  " 

North  Carolina,  9          "  "  " 

Georgia,  9  fVo  "  "  " 

Man,  in  his  operations  for  his  own  individual  account, 
rarely  commits  the  error  of  confounding  capital  and  its 
representatives,  because  this  would  be  fatal  to  his  own 
well  being.  An  individual  never  borrows  money  to  re 
tain  it  as  direct  means  of  enjoyment  :  he  invariably 
seeks  money  as  means  of  obtaining,  by  exchange,  those 
things  which  contribute,  per  se,  to  his  enjoyment  or  well 
being.  An  intelligent  man  never  long  retains  money 
on  hand.  He  invariably  exchanges  it  for  useful  or  pro 
ductive  things.  But  in  their  collective  capacity,  as 
legislators  and  theorists,  where  the  results  of  their  ac 
tions  and  theories  fall  principally  upon  others,  men  con 
stantly  assert  and  act  on  the  theory  that  capital  and 
money  are  identical. if 

Of  all  the  representatives  of  capital  and  services, 
gold  and  silver  have  been  the  most  generally  used. 
They  were  undoubtedly  first  resorted  to  by  merchants 
as  mediums  of  exchanging  commodities,  from  their  gen 
eral  use  for  ornaments,  which  gave  them  a  current  value 
everywhere.  The  scarcity  of  these  metals  also  gave 

*  Encyc.  Britannica,  Money. 

f  Report  of  Committee  on  Commerce  of  House  of  Representatives, 
September,  1850. 

jf.  "  Gold  and  silver,  though  they  serve  for  few,  yet  they  command  all 
the  conveniencies  of  life,  and  therefore  in  a  plenty  of  them  consists  riches." 
(Locke,  vol.  v,  p.  12,  London  edition,  1823.) 


MONEY.  21 

them  a  great  value  in  a  small  volume,  another  great 
advantage  they  offered  as  means  of  exchanging  commod 
ities.  At  first  the  value  of  gold  and  silver  was  entire 
ly  regulated  by  their  value  at  the  silversmith's,  for  mer 
chants  then  only  used  the  precious  metals  as  commodi 
ties,  easily  bartered  everywhere  for  any  other  commod 
ity  desired  ;  and  as  long  as  this  was  the  case,  their 
value  followed  the  same  law  as  the  value  of  other 
commodities.  But  experience  having  demonstrated 
that  gold  and  silver  were  admirable  instruments  for 
facilitating  the  exchanges  of  commodities  and  services, 
they  were  each  day  more  and  more  used  for  that  pur 
pose  alone,  without  the  slightest  view  to  consumption ; 
and  this  change  in  their  use,  from  commodities  for  con 
sumption  to  mere  counters  representing  commodities 
delivered  or  services  rendered,  was  so  gradual  and  im 
perceptible  that  to  this  day  it  is  generally  believed,  even 
by  economists  of  eminence,  that  the  value  of  gold  and 
silver  entirely  depends  on  their  intrinsic  value,  or  on  the 
amount  of  labor  required  to  produce  them.*  But  this 
evidently  is  an  error,  for  as  soon  as  the  use  of  gold  and 
silver  as  coin,  as  representatives  of  commodities,  became 
infinitely  greater  than  their  use  as  commodities,  their 
value  as  coin,  as  instruments  of  exchanges,  regulated 

*  Mr.  Senior,  in  one  of  his  lectures  on  the  value  of  money,  observes : 
"  The  value  of  the  precious  metals,  as  money,  must  depend  ultimately  on 
their  value  as  materials  of  jewelry  and  plate  ;  since  if  they  were  not  used 
as  commodities,  they  could  not  circulate  as  money."  (Tooke,  History  of 
Prices,  vol.  v,  p.  224.) 

Mr.  Senior  had  evidently  in  view  only  the  original  cause  which  led  to 
the  use  of  the  precious  metals — of  their  use  as  commodities  easily  bartered 
everywhere  :  he  entirely  ignored  their  use  as  counters  representing  com 
modities  and  services. 


22  MONEY. 

their  value  as  commodities.  Should  either  metal  ever  be 
more  useful  or  more  sought  for  as  a  commodity  than  as 
money,  it  would  soon  disappear  from  circulation  as  coin, 
no  matter  what  efforts  might  be  made  to  retain  it  as  coin  ; 
but  so  long  as  they  are  mostly  used  as  money,  gold  and 
silver  as  commodities  will  always  be  worth  the  value  given 
them  as  coin,  the  delay  and  expense  of  coining  alone  de 
ducted  ;  for  no  one  will  ever  sell  the  precious  metals  as 
bullion,  at  less  than  their  value  as  coin,  so  long  as  they 
can  be  coined  and  used  as  money  ;  nor  will  any  cne  ever 
pay  more  for  gold  and  silver  as  commodities,  than  their 
value  as  coin,  so  long  as  they  can  be  obtained  by  melting 
the  coin.  This  is  well  established  by  the  fact  that  all  the 
precious  metals  used  in  the  arts  are  paid  the  exact  value, 
neither  more  nor  less,  that  they  are  worth  as  money. 

As  commodities,  gold  and  silver  are  capital  \  but  as 
money,  they  are  mere  representatives  of  commodities, 
of  capital  itself.  It  is  this  double  function  of  gold  and 
silver,  as  commodities  and  as  representatives  of  commod 
ities,  that  has  confused  all  the  economists  and  writers 
on  the  subject  of  the  precious  metals.  And  it  is  from 
not  separating,  from  confounding  these  two  opposite 
and  entirely  different  attributes  of  the  precious  metals, 
that  have  arisen  most  of  the  erroneous  theories  in  regard 
to  their  value.*  It  is  from  considering  metallic  money 
as  capital  that  Macleod  arrives  at  the  absurd  conclusion 
that  credit  is  capital.f  "  Money  is  capital — money 

*  "  But  there  will  be  found  to  be  no  inconsiderable  difference,  if  we 
distinguish  as  we  ought  to  do,  for  the  purpose  whether  of  theory  or  prac 
tice,  between  gold  considered  as  merchandise,  i.  e.,  capital,  and  gold  con 
sidered  as  currency,  circulating  in  the  shape  of  coin  among  the  public." 
(Tooke,  History  of  Prices,  vol.  iii,  p.  224.) 

f  Theory  and  Practice  of  Banking,  vol.  i,  p.  262 :  "  Hence  as  capital  and 


MONEY.  23 

commands  and  exchanges  commodities  and  services — 
so  does  credit  to  a  still  greater  extent — therefore  credit 
as  well  as  money  is  capital/'  That  this  is  the  process 
of  reasoning  by  which  he  arrives  at  this  absurd  conclu 
sion,  is  very  evident  from  the  fact  that  he  says,*  "  a 

credit  perform  exactly  the  same  functions  and  are  essentially  of  the  same 
nature — the  one  being  the  symbol  of  past  labor,  the  other  of  future  labor, 
but  both  being  transferring  power,  it  is  not  an  incorrect  expression  to  say 

that  CREDIT  IS  CAPITAL." 

*  Theory  and  Practice  of  Banking,  vol.  i,  p.  259.  Macleod's  extraor 
dinary  theory  that  credit  is  capital,  comes  also  from  his  employing  the  term 
capital  in  its  mercantile  sense,  as  designating  money,  instead  of  in  its 
scientific  sense,  as  designating  all  economized,  existing  results  of  labor. 
He  says,  vol.  i,  p.  262 :  "  What  is  capital  in  the  ordinary  sense  ?  It  is  that 
portion  of  currency  which  is  employed  in  reproductive  operations:  when 
the  harvest  is  reaped,  part  of  the  corn  is  consumed  and  part  is  sown  again. 
Now  currency  is  like  corn,  the  part  that  is  consumed  is  revenue,  and  the 
part  that  is  sown  again  is  capital."  Here  are  two  important  errors:  1. 
Capital  held  idle  is  just  as  much  capital  as  when  used  in  reproductive  opera 
tions.  The  idea  that  nothing  is  capital  that  is  not  used  reproductively,  is 
one  of  the  exploded  errors  of  the  earlier  economists,  an  error  arising  from 
the  mercantile  sense  of  the  term  capital.  2.  What  part  of  currency  is  con 
sumed  ?  and  by  what  process  ?  Until  Mr.  Macleod  answers  these  queries 
we  cannot  admit  that  currency  is  consumed  like  corn,  either  productively 
or  unproductively. 

Macleod  seems  to  look  upon  labor  as  productive  only  of  money  wages, 
for  he  says,  vol.  ii,  p.  xliv :  "But  suppose  that  instead  of  spending  all  hia 
earnings  on  commodities,  he  saves  a  portion,  .  .  .  that  saving  is 
called  capital."  The  only  capital  produced  by  the  laborer,  that  can  become 
an  addition  to  previously  existing  capital,  is  the  result  of  his  labor — money, 
whether  metallic  or  paper,  is  only  an  instrument  which,  like  the  highway  or 
the  wagon,  aids  the  transfer  of  commodities  from  one  person  or  place  to 
another;  and  the  money,  exactly  like  the  highway  or  the  wagon,  must  be 
in  existence  before  it  can  be  used  to  facilitate  exchanges.  Consequently, 
in  no  way  can  any  portion  of  money  wages  saved  by  a  laborer  be  an  addi 
tion  to  existing  capital.  How  Macleod  should  have  fallen  into  the  error  of 
using  the  term  capital  as  synonymous  with  money  is  really  incomprehensi 
ble,  for  he  says,  vol.  ii,  p.  xlv,  "  The  primary,  genuine,  and  exclusive  mean 
ing  of  capital  is  the  accumulated  savings  of  labor,  and  its  symbol  is  money." 


24  MONEY. 

banker's  notes  in  circulation  are  quite  as  much  banking 
capital  to  him  as  gold  deposited  with  him  by  his  cred 
itors."  How  can  a  banker's  indebtedness  be  capital  to 
him  ? 

The  metal  contained  in  a  coin  is  a  commodity  be 
fore  it  is  coined,  and  also  after  it  is  melted  ;  but  as  long 
as  it  is  used  as  money,  to  facilitate  the  exchanges  of 
commodities  and  services,  it  is  a  mere  counter,  a  repre 
sentative  of  commodities  and  services,  no  more  subject 
to  the  laws  that  govern  commodities  and  services  than 
paper  money.*  For  example,  increase  the  representa 
tives  of  commodities  and  services,  and  in  no  way  will  it 
increase  the  enjoyment  and  progress  of  the  community. 
On  the  contrary,  increase  the  amount  of  commodities 
and  services  available  to  the  community,  and  the  well 
being  of  all  will  be  increased,  no  matter  how  little 
money  there  may  be  ;  for  the  absence  of  money  would 
only  render  the  exchanges  of  commodities  less  rapid  and 
easy,  but  it  would  not  prevent  the  general  enjoyment 
and  progress  produced  by  commodities  and  services. 
Civilization  is  possible  without  money,  but  civilization 
is  perfectly  impossible  without  the  commodities  and 
services  that  contribute  to  man's  progress  and  well  be 
ing.  This  seems  to  have  been  clearly  perceived  by  the 

How  can  a  symbol  be  bona  fide  capital  ?  Capital  always  designates  some 
thing  real,  something  useful,  per  se.  Macleod  says  himself,  vol.  ii,  p.  liv : 
"  It  is  true  that  capital  is  not  exactly  synonymous  with  money  ;  but  money 
is  its  symbol  and  representative." 

*  "  Money  of  every  kind  is  an  order  for  goods  ;  it  is  so  considered  by 
the  laborer  when  he  receives  it,  and  is  almost  instantly  turned  into  money's 
worth.  It  is  merely  the  instrument  by  which  the  purchasable  stock  of  the 
country  is  distributed  with  convenience  and  advantage  among  the  several 
members  of  the  community."  (Thornton,  An  Inquiry,  &c.,  p.  260,  quoted 
by  Macleod,  Theory  and  Practice  of  Banking,  vol.  i,  p.  390.) 


MONEY.  25 

celebrated  Marshal  Vauban,  who  said,  "  the  true  wealth 
of  a  kingdom  consists  in  the  abundance  of  products 
useful  to  man/'  Also  by  Voltaire,  who  said  :  "  A  na 
tion  that  should  have  only  gold  and  silver,  would  be 
most  miserable,  whilst  a  nation  that  possessed  none  of 
these  metals,  but  produced  all  other  things  that  con 
tribute  to  man's  enjoyment  and  welfare,  would  be  very 
wealthy." 

Money  is  the^measure  of  value  of  all  things  except 
itself.  But  in  this  world  there  is  nothing  absolute  ;  all 
is  relative.  Therefore  money  does  not,  cannot  measure 
the  absolute  or  intrinsic  value  of  things,  but  merely 
their  relative  value  ;  or  rather,  the  momentary  estima 
tion  of  the  relative  usefulness  of  the  human  labor  and 
intelligence  incorporated  in  things.  And  money  meas 
ures  this  relation,  not  because  it  contains  in  itself  an 
equivalent  amount  of  usefulness  or  labor,  but  because 
it  is  everywhere  accepted  at  a  fixed  value  in  exchange 
for  all  other  things.  "When  $2  are  paid  for  a  pair 
of  shoes,  and  $4  for  a  hat,  it  does  not  indicate  that 
the  hat  and  the  shoes  contain  the  same  amount  of 
human  labor  as  the  silver  or  the  gold  contained  in  the 
coins,  or  the  paper  on  which  are  printed  the  banknotes, 
given  for  them.  It  indicates,  merely,  that  it  requires 
two  pairs  of  shoes  to  purchase  one  hat — in  other  words, 
that  the  human  labor  incorporated  in  one  hat  is  as 
much  prized  as  that  incorporated  in  two  pairs  of  shoes 
—that  with  one  hat  the  hatter  can  purchase  two  pairs 
of  shoos,  and  "vice  versa." 

Anything    that    is    not  generally  accepted  in  ex 
change  for   commodities  and  services,  cannot  perform 
the  functions  of  money,  no  matter  how  great  be  the 
2 


26  MONEY. 

amount  of  human  labor  required  to  produce  or  procure 
the  material  it  is  made  of.  A  counterfeit  coin,  almost 
worthless,  and  even  a  counterfeit  bank  note,  entirely 
worthless,  successfully  perform  all  the  functions  of 
money  as  long  as  they  are  accepted  in  exchange  for 
commodities  and  services.* 

All  commercial  nations  now  use  either  one  or  both 
of  the  precious  metals  as  money.  They  are  supposed 
to  give  them  a  fixed  value  by  coining  yiem.and  making 
them  a  legal  tender  in  payment  of  all  taxes  levied  by 
the  Government  that  coins  them,  and  of  all  individual 

*  "  Coin  is  an  ordinary  commodity,  like  any  other,  authenticated  as  to 
quality  and  weight  by  the  stamp  of  the  state.  But  coin,  so  long  as  it 
circulates  within  the  realm  for  the  purpose  of  buying  and  selling,  loses  for 
the  time  its  intrinsic  value.  It  resembles  a  steam  engine,  a  field,  or  any 
other  machine.  Its  intrinsic  value  is  suspended  till  it  is  sold,  and  its  worth 
consists  solely  in  the  work  it  achieves.  Sovereigns,  when  passing  from 
hand  to  hand,  are  no  better  than  counters  or  tokens.  They  are  not  wanted 
for  the  sake  of  the  gold  they  contain,  but  simply  as  pledges  that  a  man 
shall  be  able  to  buy  with  them  as  many  commodities  as  those  he  gave  in 
exchange  for  them.  A  bad  shilling  does  the  work  of  coin  quite  as  well  as 
a  good  one  till  it  is  found  out ;  and  it  then  becomes  worthless,  because  the 
absence  of  the  intrinsic  value  destroys  faith  in  its  power  to  persuade  a 
seller  to  part  with  his  wares.  If  that  seller  knew  that  he  could  pass  it  off 
as  good  upon  another  man,  he  would  (apart  from  the  question  of  morality) 
be  as  willing  to  take  it  as  a  silver  shilling.  Metallic  money,  whilst  acting 
as  coin,  is  identical  with  paper  money,  in  respect  of  being  destitute  of  in 
trinsic  value  ;  with  this  single  difference,  that  when  it  is  desired  to  repro 
duce  that  intrinsic  value,  the  sovereign  can  be  instantly  turned  into  bullion ; 
whilst,  in  the  case  of  a  note,  an  intermediate  step  is  necessary — it  must  be 
sent  to  the  bank  before  its  intrinsic  worth  is  recovered.  The  security  for 
the  value  is  already  in  the  hands  of  the  holder  of  the  sovereign  ;  for  the 
note,  the  solvency  of  the  issuer  is  an  additional  requisite.  Still,  whilst 
circulating,  both  make  no  use  of  intrinsic  value  ;  and  this  is  the  great 
point  to  grasp  firmly"  (What  is  Money  ? — North  British  Review,  Nov. 
1861 — without  exception  the  best  article  on  money  we  have  yet  met 
with.) 


MONEY.  27 

contracts.  But  this  fixed  value  is  only  illusory.  Coin 
ing  money  does  not  establish  its  value.  It  only  indicates 
the  quantity  and  quality  of  the  metal  of  which  the  coins 
are  made*  Coins  are  mere  pieces  of  metal,  of  fixed 
weight  and  quality,  tested  by  an  authority  recognised 
by  all,  with  which  purchases  may  be  made  and  all  con 
tracts  for  the  payment  of  money  fulfilled.  A  contract 
to  pay  one  thousand  dollars,  pounds,  florins,  francs,  or 
any  other  coin,  is  simply  a  contract  to  deliver  a  certain 
number  of  pieces  of  metal  of  a  certain  weight  and  fine 
ness;  and  the  coins  are  such  pieces,  certified  correct  by 

"  The  province  or  function  of  the  Government  in  regard  to  coinage, 
as  conducted  by  the  Mint  in  obedience  to  the  prescribed  regulations,  is 
simply  to  certify  by  a  stamp,  bearing  the  effigy  of  the  sovereign,  the 
weight  and  fineness  of  the  piece  of  metal  to  which  it  is  applied."  (Tooke, 
vol.  v,  p.  517.) 

"  When  nations  advanced  beyond  the  stage  of  direct  barter,  and  began 
to  use  the  precious  metals  as  a  common  measure  to  which  the  value  of  all 
other  commodities  was  referred,  it  was  the  weight  of  the  pure  metal  which 
was  invariably  used  as  the  index  of  value,  and  merchant  carried  scales 
about  with  them,  for  the  purpose  of  weighing  out  the  metal  on  each  sepa 
rate  occasion.  .  .  .  The  necessity  of  carrying  about  scales  to  weigh  out  the 
metal  on  each  separate  occasion  being  felt  to  be  tedious  and  irksome,  the 
plan  was  devised  of  cutting  the  bullion  into  pieces  of  a  certain  definite 
weight  by  the  public  authority,  and  putting  a  stamp  upon  them  to  certify 
to  the  community  that  they  were  warranted  to  contain  a  certain  weight  of 
bullion  of  a  certain  definite  fineness.  Values  were  then  estimated  by  the 
number  of  these  pieces  of  bullion,  which  were  called  coins,  which  were 
given  for  commodities,  and  then  they  were  said  to  be  reckoned  by  tale. 
It  is  clear  that  the  sole  object  of  coining  was  to  save  the  trouble  of  weigh 
ing,  and  that  though  the  prices  of  articles  were  estimated  in  figures,  it  was 
essentially  part  of  the  understanding  that  these  figures  denote  certain 
specific  quantities  of  pure  metal."  (Macleod,  Theory  and  Practice  of 
Banking,  vol.  i,  pp.  275,  276.) 

"  The  stamp  on  the  coin  is  the  guarantee  of  the  state  that  it  contains  a 
certain  weight  of  bullion."  (Macleod,  Theory  and  Practice  of  Banking, 
vol.  j,  p.  289.) 


28  MONEY. 

competent  authority.  How  unjust,  then,  how  great  the 
abuse  of  power,  for  a  Government  to  debase  the  coin, 
or  to  make  paper  a  legal  tender,  and  thus  force  credit 
ors  to  accept,  in  liquidation  of  existing  contracts,  some 
thing  else  than  what  the  contracts  stipulate  !  After 
one  of  the  parties  to  a  contract  has  fulfilled  his  part  of 
it,  what  principle  of  law  or  equity  authorizes  the  en 
actment  of  a  law  absolving  the  other  party,  in  whole  or 
in  part,  from  fulfilling  his  portion  of  the  contract  ?  Is 
it  not  a  well-established  principle  of  legislation  that  no 
law  shall  be  retroactive  in  its  effect,  or  shall  impair  the 
obligation  of  existing  contracts?0  That  coining  the 

*  "  Money  has  two  functions :  the  one,  that  of  serving  as  an  instru 
ment  of  exchange ;  the  other,  that  of  being  the  subject  of  contracts  for 
future  payment.  It  is  in  the  latter  capacity  that  the  fixity  of  a  standard  is 
most  essential.  It  is  as  the  subject  of  engagements  or  obligations  for 
future  payment,  that  in  every  view  of  justice  and  polity,  the  specific  thing 
promised,  in  quantity  and  quality,  should  be  paid  at  the  expiration  of  the 
term."  (Tooke,  History  of  Prices,  vol.  i.  pp.  145,  146.) 

u  An  alteration  of  the  standard  is  a  direct  fraud  upon  debtors  or 
creditors,  according  as  it  is  raised  or  lowered ;  because  the  essence  of 
every,  contract  is,  that  the  debtor  is  to  pay  a  certain  weight  of  gold,  and 
not  so  many  abstract  ideas  which  are  called  pounds."  (Macleod,  Theory 
and  Practice  of  Banking,  vol.  i.  p.  289.) 

"  When  one  man  lends  another  a  sum  of  money  to  be  returned  to  him 
at  some  future  period,  ...  he  grants  the  use  of  a  certain  number  of  pieces 
of  metal  of  given  weight  and  fineness  during  a  definite  period,  on  condition 
that  an  equal  number  of  pieces  of  the  same  weight  and  fineness  shall  be 
restored  at  the  expiration  of  the  time.  .  .  .  There  is  here  no  question  of 
value,  or  what  quantity  of  commodity  or  set  of  commodities  the  gold  will 
command  in  exchange.  This  has  no  part  in  the  contract.  The  agreement 
respects  the  quantity  and  not  the  value  of  the  gold  ;  it  has  nothing  to  do 
with  the  purchasing  power  of  gold  in  the  market.  .  .  .  This  is  a  correct 
representation  of  the  nature  of  all  mere  pecuniary  bargains.  .  .  .  We  must 
come  to  a  quantity  of  something  at  last." 

"  It  is  true  that  contracts  may  be  made  which  shall  have  reference  to 
the  value  of  gold  or  silver  as  well  as  to  its  quantity.  ...  I  may  with  great 


MONEY.  29 

precious  metals  does  not  give  them  a  fixed  value  is  very 
evident  from  the  well-known  fact  that  any  given  amount 
of  money  will,  at  one  time,  purchase  a  much  greater 
amount  of  commodities  than  at  another,  although  the 
money  contains,  at  "both  moments,  the  same  amount  of 
metal  of  the  same  fineness.  And  yet  it  is  the  almost 
universal  opinion  that  the  only  thing  that  retains  a 
fixed,  unalterable  value  is  metallic  currency;  and  this 
opinion,  however  erroneous  it  may  be,  greatly  aids  in 
giving  gold  and  silver  their  universal  circulation. 

Money  can  neither  be  a  proper  measure  of  value, 
nor  the  proper  subject  of  contracts  for  future  payments, 
if  it  be  subject  to  alterations.  The  only  attribute  of 
money  that  cannot  be  fixed  is  its  exchangeable  value, 
which  can  only  be  expressed  or  measured  by  the  quan 
tity  of  other  things  obtained  in  exchange  for  a  given 
amount  of  money.  Therefore,  while  gold  and  silver 
measure  the  value  of  commodities  and  services,  com 
modities  and* services  alone  can  measure  the  value  of 
gold  and  silver.* 

The  use  of  the  precious  metals  as  money,  every 
where,  enables  commerce  to  resort  to  them  as  an  uni- 

propriety  stipulate,  that,  inasmuch  as  the  £100  which  I  lend  when  wheat 
is  at  50s.  per  quarter  is  equal  to  40  quarters  of  wheat,  the  value  of  40 
quarters  of  wheat  shall  be  returned  to  me  when  the  loan  is  repaid.  In. 
effect  this  is  lending  the  wheat.  In  the  same  way  any  other  commodity 
may  be  lent,  or  any  other  stipulation  may  be  made.  The  freedom  of 
bargain  is  and  ought  to  be  quite  unrestricted."  (Bailey,  Money  and  its 
Vicissitudes  in  Value — quoted  by  Tooke,  History  of  Prices,  vol.  v. 
pp.  148-149.) 

*  "  Gold  and  silver  do  not  measure  the  value  of  commodities  more 
than  the  latter  measure  the  value  of  gold  and  silver.  When  one  com 
modity  is  exchanged  for  another,  each  measures  the  value  of  the  other." 
(Encyclopaedia  Britannica,  Money.) 


30  MONEY. 

versal  measure  of  relative  values.  By  knowing  the  rela 
tive  quantity  and  fineness  of  the  metal  contained  in  the 
coins  of  any  two  countries,  and  the  money  price  of 
things  in  both,  the  relative  value  of  anything  in  both 
countries  can  at  once  be  accurately  ascertained  and 
compared.  Without  this  knowledge  a  large  portion  of 
the  beneficial  operations  of  commerce  and  industry 
would  be  impossible. 

Metallic  money  is  supposed  to  carry  its  value  in 
itself.  This  was  the  case  at  first,  when  it  was  used  ex 
clusively  as  a  commodity.  This  value  in  itself  was  an 
indispensable  attribute  of  money  in  the  early  stages  of 
civilization,  when  it  was  used  as  a  medium  of  ex 
changes  between  strangers,  and  between  parties  having 
no  confidence  in  each  other,  or  in  the  laws  that  pro 
tected  them,  and  who,  therefore,  would  not  part  with 
their  property  unless  they  received  in  exchange,  on  the 
spot,  something  of  equal  intrinsic  value  in  their  eyes. 
But  to-day  the  most  important  use  of  aaoney  is  as  an 
acknowledgment,  as  a  certificate,  of  services  rendered 
but  not  yet  remunerated,  which  the  community  is 
bound  to  liquidate  by  rendering  equivalent  services  to 
the  holders,  on  demand.  Gold  and  silver  coin  must  be 
redeemed  by  commodities  or  services  on  demand,  or 
they  can  no  more  perform,  the  functions  of  money  than 
irredeemable  paper  money. 


CHAPTEK  III. 

THE  ancients  had  quite  as  correct  ideas  of  money 
as  most  of  the  writers  and  theorists  on  the  subject  at 
the  present  day.  Aristotle  said  :  "  May  not  money  be 
an  imaginary  wealth  ?  .  .  .  What  value  has  it  from 
nature  ?  Should  public  confidence  or  opinion,  that 
gives  it  circulation,  experience  a  change,  what  would 
be  its  real  price  ?  What  real  want  of  humanity  would 
it  then  supply  ?  Alongside  of  a  heap  of  gold  one 
might  be  in  want  of  even  food.  What  folly  to  call 
wealth  a  thing  in  the  midst  of  which  one  might  die  of 
want  !"  Elsewhere  he  says,  "  It  was  agreed  to  give 
and  to  receive,  in  exchange  for  all  things  and  services, 
a  product  or  thing  useful  in  itself,  and  easily  handled 
in  the  ordinary  transactions  of  life,  such  as  iron,  silver, 
or  any  other  substance,  of  which  the  dimensions  and 
weight  were  first  determined;  and  finally,  to  avoid  the 
trouble  of  continual  measurages,  it  was  stamped  with 
a  particular  mark,  a  sign  of  its  value"  The  last  idea 
is  erroneous,  as  coining  indicates  quantity  and  quality, 
not  value.  And  yet  Michel  Chevalier  quotes  this  last 
extract  as  "  the  very  correct  opinion  of  Aristotle,  in 
which  there  is  not  a  single  word  to  alter  to-day  ;"  and 


32  MONEY. 

he  adds,  "  Money  is  a  thing  useful  in  itself,  and  not  a 
sign."* 

The  celebrated  Law  seems  to  have  had  some  very 
correct  views  in  regard  to  money.  He  said,  "  Money 
(coin)  does  not  receive  its  value  from  Government. 
The  stamp  it  bears  indicates  its  weight  and  its  fineness 
but  does  not  give  it  its  value/' 

Le  Hardy  de  Beaulieu,  an  eminent  Belgian  econo 
mist  of  the  present  day,  says  :  "  The  value  of  money 
follows  the  variations  of  value  of  the  metal  of  which 
it  is  made,  and  no  law  or  change  in  the  names  of  the 
coins  can  make  them  escape  these  variations/'  Instead 
of  its  being  the  value  of  the  metal  that  controls  the 
value  of  money,  it  is  the  value  of  money  that  governs 
the  value  of  the  metal  of  which  it  is  made.  The  same 
author  himself  says  :  "  The  second  cause  of  the  value 
of  money  is  entirely  independent  of  the  substance  of 
which  it  is  made  ;  it  results  entirely  from  the  services 
rendered  by  money  in  facilitating  exchanges.  This  value 
has  no  tendency  to  equalize  itself  to  the  cost  of  ihe  mate 
rial  of  which  the  money  is  made.  It  depends  solely  on  the 
relation  between  supply  and  demand.  If  a  govern 
ment  only  coined  and  emitted  one  half  of  the  coin 
necessary  to  make  the  exchanges  of  a  community,  and 
could  interdict  all  importations  of  foreign  coin  and  the 
use  of  all  representatives,  the  value  of  money  could 
double,  whatever  be  the  intrinsic  value  of  the  material 
of  which  it  is  made  ;  and  vice  versa."  But  he  adds, 
"  any  excess  beyond  the  wants  of  the  community  is  in 
variably  idle  or  is  exported.  On  the  contrary  if  the 
supply  be  inadequate,  paper  representatives  are  resorted 

*  Dictionnaire  de  1'Economie  Politique,  vol.  ii,  p.  202. 


MONEY.  *  33 

to,  so  that  the  value  of  money  is  always  kept  uniform/' 
And  yet,  subsequently,  he  says  :  "  The  excess  of  the 
supply  beyond  the  demand  is  a  cause  of  depreciation 
exactly  like  with  any  merchandise  or  product."*  How 
can  this  be,  if,  as  he  says,  the  excess  beyond  the  wants 
of  the  community  is  invariably  idle  or  exported  ? 

The  value  of  all  things  which  the  wants  or  desires 
of  humanity  require  to  be  produced,  depends  on  the 
cost  of  production,  and  on  supply  and  demand.  A 
thing  must  be  worth  the  cost  of  production,  including 
a  moderate  profit  to  the  producer,  otherwise  its  produc 
tion  will  cease.  Cost  of  production  is  therefore  the 
normal  point  around  which  the  price  of  all  things  need 
ed  must  oscillate.f  Supply  and  demand  regulate,  not 

*  Trait6  elementaire  d'Economie   Politique,  pp.  133,  134. 

f  Macleod,  in  his  Theory  and  Practice  of  Banking,  asserts  that  supply 
and  demand  alone  control  price,  and  criticises  in  unmeasured  language, 
all  who  have  maintained  that  cost  of  production  regulates  value.  J 
This  is  one  of  the  remarkable  errors  of  that  very  talented^  economist. 
He  has  probably  fallen  into  this  error  from  the  fact  that  supply  and 
demand  alone  control  the  price  of  all  things  that  cannot  be  produced 
at  will  by  human  efforts,  such  as  diamonds  and  precious  stones,  paint 
ings  of  old  masters,  antiques,  &c.,  &c.  But  these  articles  are  entirely 
exceptional,  and  of  but  little  importance.  Prices  are  of  importance  as 
stimulus  to  effort,  to  the  production  of  those  things  necessary  and  useful 
to  humanity.  The  price  of  all  things  that  are  produced  by  human  effort, 
in  which  human  labor  is  incorporated,  is  mainly  governed  by  the  cost  of 
production,  for  the  moment  the  producer  cannot  obtain  cost  of  production 
and  a  moderate  profit,  he  ceases  to  produce.  Macleod  asserts  that  value 
does  not  spring  from  the  labor  of  the  producer,  but  from  the  desire  of  the 
consumer.  What  then  remunerates  and  regulates  labor  if  not  the  value  of 
its  results  ?  Looking  at  the  cost  of  production  as  the  normal  point,  we  can 

t  "The  rule  that  cost  of  production  regulates  value,  is  one  of  the  most 
pestilent  heresies  that  deform  and  confuse  the  current  political  economy  of  the  day. 
.  .  .  We  have  no  hesitation  in  saying  that  the  whole  system  of  political  economy, 
as  laid  down  by  Ricardo,  and  developed  by  Mr.  J.  8.  Mill,  is  utterly  and  radically 
bad."  (Macleod,  Theory  and  Practice  of  Banking,  Introduction,  vol.  ii,  p.  63,  64.) 

2* 


34  MONEY. 

the  price  of  things,  as  is  generally  said  by  the  econo 
mists,  but  the  division  of  labor,  by  means  of  the  varia 
tions  in  the  item  of  price  called  profit  and  loss.  When 
left  entirely  free,  labor  and  capital,  under  the  beneficial 
stimulus  of  self-interest,  have  a  constant  tendency  to 
transfer  themselves  from  the  least  profitable,  to  the 
most  remunerative,  occupations.  And  as  the  produc 
tion  of  those  things  most  desired  by  the  community  is 
always  the  most  profitable  occupation,  and  vice  versa, 
individual  interests  are  thus  constantly  kept  in  perfect 
accordance  with  the  general  interest  ;  all  things  wanted 
are  produced,  arid  no  article  is  long  produced  in  excess 
of  the  wants  of  the  consumers. 

Every  want  of  man  has  a  limit,  but  the  aggregate 
of  his  wants  and  desires  is  constantly  increasing,  and 
is,  apparently,  unlimited  ;  for  as  soon  as  one  want  or 
desire  is  satisfied,  another  arises.  Gold  and  silver, 
therefore,  as  long  as  used  as  money,  as  representatives 
of  all  the  wants  of  humanity,  will  remain  in  unlimited 
demand  ;  could  they  be  affected  by  supply  and  demand, 
the  greater  the  reduction  of  their  exchangeable  value, 
the  greater  would  be  the  demand  for  them,  because 

foresee  the  future  course  of  production,  and  thus  regulate  that  important  ele 
ment  of  human  well-being.  If  the  price  of  any  article  leaves  a  large  profit  on 
the  cost  of  production,  its  production  will  increase — if  it  leaves  a  loss,  its  pro 
duction  will  decrease.  Here  is  a  guide  for  both  producers  and  consumers, 
which  means  all  humanity.  Can  Mr.  Macleod's  "  fundamental  truth,"  that 
"  speculation  is  the  mother  of  production,but  demand  is  the  origin  of  value,"* 
supply  any  such  guide  ?  Why  is  it  that  an  article  in  great  demand  and  quite 
scarce  is  worth  only  $1,  whilst  another  article,  not  nearly  as  scarce,  nor  in  as 
great  demand.cannot  be  obtained  under  $10  or  $20?  It  must  be  that  the  amount 
of  labor  required  to  produce  each  article  has  something  to  do  with  regulating 
its  price,  no  matter  howgreat  the  demand,  or  how  limited  the  supply,  of  either. 

*  Vol.  ii,  p.  Ixiii. 


MONEY. 


35 


every  reduction   of   their   exchangeable   value,   would 
render  necessary  the  use  of  a  greater  amount  of  them 
to  obtain  any  given  amount  of  services  or  commodities. 
Most  of  the  economists  assert  that  the  value  of  the 
precious  metals,  like  that  of  all  other  commodities,  de 
pends  on  the   cost  of  production  and  supply  and  de 
mand/-     On  the  contrary,  the  value  of  gold  and  silver, 
as  long  as  they  are  used  as  money,  depends  but  slight 
ly,  if  at  all,  on  the  cost  of  production  and  on  supply 
and  demand.     The  only  effect  of  the  cost  of  production 
on  the  precious   metals,  is  to  increase  or  diminish  the 
number  of  persons   engaged  in  mining  them.     When 
the  precious  metals  cost  more  to  produce  than  their 
value  as   money,  they  cannot  rise  in  value  as  long  as 
they  can  be  obtained  for  consumption  by  melting  coin. 
And  when  the  cost  of  producing  the  precious  metals 
diminishes,  they  cannot  fall  below  their  value  as  money, 
because    the   holders   of  them   can  always  have  them 
coined  and  use  them  as  money.     Whenever  the  min 
ing   of    gold   and   silver  will    not    procure   the   same 
amount  of  commodities  and  services  that  can  be  ob- 

*  "  Gold  and  silver,  like  all  other  commodities,  are  valuable  only  in 
proportion  to  the  quantity  of  labor  necessary  to  produce  them  and  bring 
them  to  market.  Gold  is  about  fifteen  times  dearer  than  silver,  not  because 
there  is  a  greater  demand  for  it,  nor  because  the  supply  of  silver  is  fifteen 
times  greater  than  that  of  gold,  but  solely  because  fifteen  times  the  quantity 
of  labor  is  necessary  to  produce  a  given  quantity  of  it."  (Ricardo,  Principles 
of  Political  Economy,  p.  421.) 

"  If  the  proportion  of  either  metal  alter  very  materially,  as  there  seems 
considerable  prospect  of  being  the  case,  from  the  amazing  abundance  of  the 
gold  fields  of  California  and  Australia,  their  value  must  alter,  just  in  the 
same  way  as  a  very  material  alteration  in  the  supply  of  any  other  commod 
ity  will  cause  an  alteration  in  its  value."  (Macleod,  Theory  and  Practice 
of  Banking,  vol.  i,  p.  116.) 


36  MONEY. 

tained  for  a  similar  amount  of  labor,  capital,  and  in 
telligence,  employed  at  other  occupations,  capital  and 
labor  will  leave  mining  for  other  occupations;  and 
whenever  mining  will  procure  more  enjoyments  than 
other  occupations,  capital  and  labor  will  quit  other  oc 
cupations  to  go  to  mining.  But  the  extent  of  the  pos 
sible  transfers  of  labor  and  capital  from  other  occupa 
tions  to  mining  is,  and  probably  always  will  be,  quite 
limited,  for  emigration  from  distant  localities  to  the 
mining  districts,  like  all  emigration,  is  very  difficult 
and  must  always  be  slow  and  limited  in  extent,  because 
emigrants  can  never  transfer  with  themselves,  the  use 
ful  and  indispensable  results  of  labor,  such  as  manu 
factories,  houses,  streets,  roads,  canals,  railroads,  cattle 
and  horses,  improvements  of  arable  lands,  and  other 
fixtures  that  form  by  far  the  greatest  portion  of  all 
existing  capital.  Very  productive  mines  may,  how 
ever,  momentarily,  cause  a  local  rise  of  wages  and 
prices,  but  the*  production  of  the  most  productive  mines 
will  probably  ever  bear  so  slight  a  proportion  to  the 
aggregate  capital  and  productions  of  the  world  at  large, 
that  the  value  of  the  latter  can  never  be  much,  if  at 
all,  affected  by  any  future  production  of  gold  and  silver. 
The  effects,  therefore,  of  even  highly  productive  mines 
of  the  precious  metals,  can  probably  never  be  more 
than  local  and  temporary  ;  and  even  the  local  effects  of 
productive  mines  are  kept  in  check  by  the  very  rise  of 
wages  and  prices  they  locally  produce,  as  this  general 
rise  of  prices  becomes  a  powerful  inducement  to  capital 
and  labor  to  leave  mining  and  go  back  to  other  occupa 
tions,  since  a  rise  of  prices  increases  the  productiveness 
of  other  occupations  while  it  diminishes  that  of  mining. 


MONEY.  37 

The  discovery  of  the  gold  mines  in  Australia  caused  the 
prices  of  all  things  to  quadruple  in  two  years,  from 
August  1851  to  July  1853.  In  the  subsequent  eight 
een  months,  from  July  1853  to  January  1$55,  most 
commodities  gradually  fell  until  they  touched  ruinous 
prices.  Mr.  Newmarch  says  :  "  The  level  of  wages 
and  the  prices  of  certain  kinds  of  commodities  in  Mel 
bourne,  were  reduced  to  the  level  prevailing,  cceteris 
paribus,  in  other  countries.  .  .  .  The  fall  in  the 
prices  of  all  kinds  of  imported  commodities  occurred  at 
an  early  period,  and  the  low  prices  have  been  continued. 
The  fall  in  house  rent  occurred  about  the  same  early 
period,  and  has  been  more  or  less  continued.  No  ma 
terial  fall  has  occurred  in  1856,  in  the  large  number  of 
articles  of  food  and  necessity  producible  only  within 
the  colony.  The  general  result  has  been,  that  within 
a  comparatively  short  period  after  the  establishment  of 
rates  of  quadrupled  wages,  the  laborers  of  the  colony 
had  the  advantage  of  an  exceedingly  low  range  of  prices 
of  nearly  all  imported  articles  ;  and  of  falling  prices  of 
all  articles  of  colonial  production,  the  supply  of  which 
admitted  of  comparatively  easy  extension.  .  .  The 
effect  of  the  increased  supplies  of  gold  in  Victoria,  in 
largoly  increasing  the  prices  of  commodities  within  the 
colony,  was  temporary  as  concerns  the  most  numerous 
class  of  commodities."* 

In  California  the  effect  of  the  gold  mines  was  very 
similar.  In  1848  and  1849  prices  were  excessive, 
whilst  in  1851  goods  were  often  not  worth  their  storage. 

As  to  the  effects  on  the  value  of  gold  and  silver  of 
an  increased  production  of  these  metals,  how  can  an 

*  Tooke,  History  of  Prices,  voL  vi,  pp,  804-812. 


38  MONEY. 

increased  production  affect  the  value  of  an  article  for 
which  the  demand  is  unlimited,  and  of  which,  therefore, 
there  can  probably  never  be  a  glut  ?  On  the  other 
hand,  how  can  a  diminished  supply  seriously  affect  the 
value  of  a  thing,  whose  functions  can,  in  a  great  meas 
ure,  be  performed  by  other  things  ?  That  this  is  the 
case  with  gold  and  silver,  is  quite  evident,  for  before 
the  introduction  of  paper  money  and  credit,  exchanges 
were  made  without  coin,  by  means  of  barter  ;  and  since 
the  introduction  of  credit  and  paper  money,  these  in 
genious,  convenient,  and  economical  means  of  effecting 
exchanges,  are  infinitely  more  used  than  coin,  and  re 
place  it  in  most  of  the  transactions  of  commerce. 


CHAPTER    IV. 

OF  the  numerous  theories  of  the  economists  in  re 
gard  to  money,  none  seem  more  generally  accepted 
than  the  theory  that  gold  and  silver  cannot  success 
fully  be  used  simultaneously  as  the  measure  of  value, 
because  their  relative  value  varies  with  the  supply 
and  demand,  and  with  the  cost  of  production  of  these 
metals.  Xenophon  said  :  "  As  to  money,  it  is  the  very 
reverse  of  all  other  things.  The  greater  the  number 
of  mines  discovered  and  worked,  the  greater  the  anxiety 
of  the  citizens  to  become  owners  of  them.  It  may  be 
objected  that  gold  is  at  least  as  useful  as  silver.  I  shall 
not  deny  this.  /  shall  only  remark  that  gold,  if  it 
became  more  common  than  silver,  would  fall  in  value, 
whilst  silver  would  rise  in  value." 

Sir  William  Petty  in  the  17th  century  said  :  "  The 
relative  value  of  gold  and  silver  is  modified  according 
as  human  industry  extracts  more  of  one  than  of  the 
other  from  the  bowels  of  the  earth.  Consequently  only 
one  at  a  time  should  be  used  as  money." 

Locke  said  :  "Two  metals,  as  gold  and  silver,  can 
not  be  the  measure  of  commerce  both  together  in  any 
country  ;  because  the  measure  of  commerce  must  be 
perpetually  the  same,  invariable,  and  keeping  the  same 


40  MONEY. 

proportion  of  value  in  all  its  parts One  may 

as  well  make  a  measure,  v.  g.  a  yard,  whose  parts 
lengthen  and  shrink,  as  a  measure  of  trade  of  materials 
that  have  not  always  a  settled,  invariable  value  to  one 
another.  .  .  .  One  metal,  therefore,  alone  can  be  the 
money  of  account  and  contract,  and  the  measure  of 
commerce  in  any  country."  * 

Michel  Chevalier  is  the  most  prominent  of  the 
numerous  modern  advocates  of  this  doctrine.  The  error 
of  tbe  theory  is  in  taking  for  granted  that  governments 
cannot  give  a  fixed,  invariable,  relative  value  to  the 
two  precious  metals.  Against  this  theory  we  have  the 
important  fact  that  governments  constantly  and  suc 
cessfully  do  regulate  the  relative  value  of  these  metals. 
In  fact  this  is  the  only  power  governments  possess  over 
their  value,  for  coining  them  does  not  give  them  value, 
but  merely  designates  the  quantity  and  quality  of  the 
metal  the  coins  are  made  of.  What  has  greatly  aided 
in  giving  currency  to  the  erroneous  theory  in  question, 
is  the  solidarity  that  exists  between  all  nations  con 
nected  by  the  ties  of  commerce.  This  causes  the  rela 
tive  legal  value  of  the  two  metals  in  any  one  locality, 
to  be  affected  momentarily  by  their  relative  legal  value 
in  any  other  country  in  whose  favor  a  temporary  bal 
ance  of  trade  has  to  be  liquidated.  What  occurred  in 
the  United  States  is  a  striking  proof  of  the  power  of 
governments  to  establish  the  relative  value  of  gold  and 
silver,  as  well  as  of  the  effects  of  having  different  legal 
relative  values  in  different  countries. 

In  the  United  States,  the  relative  value  of  gold 
and  silver  was  established  in  1792  at  1  to  15,  which 

*  Vol.  v,  p.  151.    London  Edition,  1823. 


MONEY.  41 


was  that  then  adopted  by  France  and  most  of  the 
European  nations  ;  but  when  France  and  the  rest  of 
Europe  subsequently  changed  the  relative  value  to  1 
to  15^,  the  United  States  made  no  alteration  in  their 
coinage.  The  consequence  was,  that  thereafter,  when 
ever  the  United  States  had  to 'liquidate  a  balance  of 
trade  in  favor  of  Europe,  it  was  invariably  paid  in  gold 
as  long  as  that  metal  could  be  obtained  at  3  J-  per  cent, 
premium  or  under,  because  the  ounce  of  gold  that  could 
be  obtained  in  the  United  States  for  15  ounces  of  silver, 
had  the  same  value  in  Europe  as  15^  ounces  of  silver. 
And  when  Europe  had  to  liquidate  a  balance  of  trade 
in  favor  of  the  United  States,  it  was  invariably  done 
with  silver,  because  the  15£  ounces  of  silver  that  could 
be  obtained  in  Europe  for  one  ounce  of  gold,  had  the 
same  value  in  the  United  States,  as  1^  ounce  of  gold. 
The  attention  of  Congress  being  called  to  these  facts, 
an  act  was  passed  in  1834,  altering  the  relative  value 
of  gold  and  silver  to  1  to  16.  This  was  committing 
as  great  an  error  as  the  one  it  attempted  to  correct. 
Instead  of  adopting  the  same  relative  value  as  in 
Europe,  Congress  adopted  one  that  inverted  the  pre 
vious  difference  in  the  relative  values  in  Europe  and 
the  United  States.  The  new  relative  value  made  gold 
about  3J  per  cent,  dearer  in  the  United  States  than 
in  Europe,  and  silver  3J  per  cent,  clearer  in  Europe 
than  in  the  United  States.  At  once  the  currents  of 
the  metals  were  reversed.  Silver  alone  was  thereafter 
sent  from  the  United  States  to  Europe,  in  liquidation 
of  all  balances  of  trade,  as  long  as  it  could  be  obtained 
at  or  under  3  per  cent,  premium,  and  gold  alone  was 
sent  by  Europe  to  liquidate  the  balances  of  trade  in 


42  MONEY. 

favor  of  the  United  States.  Under  both  relative  values, 
the  premium  on  the  cheap  metal  disappeared  whenever 
there  was  no  adverse  balance  of  trade  to  liquidate  in 
favor  of  Europe,  as  then  the  legal  relative  value  in  the 
United  States  alone  governed  the  value  of  both  metals 
there  ;  whereas  each  time  a  balance  of  trade  in  favor 
of  Europe  was  being  liquidated,  the  premium  reap 
peared.  It  is  very  evident  that  the  premiums  in  both 
these  cases  were  entirely  due  to  the  difference  in  the 
legal  relative  values  of  the  precious  metals  in  Europe 
and  in  the  United  States,  and  not  to  any  variations  in 
their  intrinsic  or  commercial  values. 

Precisely  the  same  thing  occurred  in  England  in 
the  reign  of  James  I.  Gold,  being  estimated  too  low 
at  the  mint  compared  with  silver,  was  freely  exported, 
which  caused  incessant  complaints.  To  remedy  this 
evil,  King  James  raised  the  value  of  gold  in  his  coins 
by  successive  proclamations  ;  but  he  at  last  raised  it 
too  high,  and  during  the  remainder  of  his  reign,  and 
that  of  Charles  I,  the  silver  coins  were  exported  until 
the  complaints  were  as  great  for  want  of  silver  as  they 
had  been  before  for  want  of  gold.'-' 

Sir  Isaac  Newton,  with  his  usual  clear  perception 
of  the  principles  governing  phenomena,  discovered  the 
cause  and  pointed  out  the  remedy  for  the  difficulty 
in  the  way  of  using  the  two  metals  as  standards  of 
value.  In  his  report  as  master  of  the  mint,  he  said  : 
"  it  appears  by  experience  as  well  as  by  reason,  that 
silver  flows  from  those  places  where  its  value  is  lowest 
in  proportion  to  gold,  as  from  Spain  to  all  Europe,  and 
from  all  Europe  to  the  East  Indies,  China  and  Japan, 

*  Lord  Liverpool,  Coins  of  the  Realm,  p.  118. 


MONEY.  43 

and  that  gold  is  most  plentiful  in  those  places  in  which 
its  value  is  highest  in  proportion  to  silver,  as  in  Spain 
and  England."  He  pointed  out  that  it  was  the  irregu 
larity  in  the  valuation  of  these  two  metals,  that  caused 
so  much  transmission  of  one  or  the  other  from  place 
to  place,  "  and  if  gold  were  lowered  only,  so  as  to  have 
the  same  proportion  to  the  silver  money  in  England, 
which  it  hath  to  silver  in  the  rest  of  Europe,  there 
would  be  no  temptation  to  export  silver  rather  than 
gold  to  any  other  part  of  Europe.  And  to  compass 
this  last,  there  seems  nothing  more  requisite  than-  to 
take  off  about  10c£.  or  I'2d.  from  the  guinea,  so  that 
gold  may  bear  the  same  proportion  to  the  silver  money 
in  England,  which  it  ought  to  do  by  the  course  of  trade 
and  exchange  in  Europe."*  And  yet  after  quoting 
this,  Macleod  says  :  "  their  market  values  (of  gold  and 
silver)  were  constantly  varying,  and /row  causes  quite 
beyond  Ike  reach  of  any  law."  f 

The  facts  cited  appear  to  us  to  prove  conclusively 
that  governments,  by  common  accord,  can  establish 
and  maintain  any  given  relative  value  between  the  two 
metals,  as  long  as  they  are  used  as  money. 

Another  very  important  fact  to  notice  in  regard  to 
the  different  relative  legal  values  given  to  gold  and  sil 
ver,  is  that  it  is  ahvays  the  cheap  metal  that  is  scarce 
and  the  dear  metal  that  is  abundant;  the  very  reverse 
of  what  invariably  occurs  with  commodities,  which  are 
always  cheap  where  abundant,  and  dear  where  scarce  ; 
another  proof  that  money  does  not  follow  the  same  laws 
as  commodities. 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  i,  p.  163. 
f  Theory  and  Practice  of  Banking,  vol.  i,  p.  279. 


44  MONEY. 

The  relative  value  of  gold  and  silver  at  different 
periods  has  been  : 

In  ancient  Greece  and  Rome 1  to  12 

In  Greece,  after  the  conquests  of  Alexander  the 

Great 1  to  10 

In  Italy,  after  the  conquests  of  Julius  Cicsar.  . .  1  to    9 
After  the  conquest  of  Sicily  by  the  Romans, 

where  large  quantities  of  silver  were  found. .  1  to  17 

At  the  end  of  the  15th  century,  in  Europe 1  to  11 

In  England,  in  1604 1  to  12TV 

In  England,  in  1626 1  to  13£ 

In  1641,  in  France 1  to  131 

In  1641,  in  Spain 1  to  14 

In  England,  in  1666 1  to  141 

In  England,  in  1717 1  to  15£ 

In  the  middle  of  the  18th  century,  in  Holland. .  1  to  141 

In  the  middle  of  the  18th  century,  in  France. .  1  to  15 

By  the  act  of  the  7th  Germinal,  year  11  (28th 
March,  1803),  France  adopted  the  present  relative  value 
of  1  to  15|,  which  has  since  become  the  general  relative 
value  in  Europe,  wherever  both  the  metals  are  legal 
tenders. 

From  1344  to  1664  a  double  standard  prevailed  in 
England,*T3oth  silver  and  gold  being  a  legal  tender  ;  the 
silver  coins  at  the  rate  they  were  issued  from  the  mint, 
the  gold  coins  at  rates  fixed,  from  time  to  time,  by 
royal  proclamation.  From  1717  it  was  declared  by 
proclamation,  at  the  recommendation  of  Sir  Isaac  New 
ton,  then  master  of  the  mint,  that  the  guinea  should 
be  taken  as  the  equivalent  of  twenty-one  shillings  in 
silver.  This  fixed  the  relative  value  at  1  to  ISyVeVo 
Both  metals  continued  a  legal  tender  at  this  relative 
value  till  1774,  when  silver  was  disallowed  as  a  legal 
tender  for  sums  exceeding  £25.  In  1816  the  pound  of 


MONEY.  45 

standard  silver  was  coined  into  sixty-six  shillings,  es 
tablishing  the  relative  value  at  1  to  14.287  ;  silver  was 
declared  to  be  a  legal  tender  only  for  sums  of  forty  shil 
lings  or  under,  and 'thenceforth  it  was  only  coined  for 
account  of  the  Government.  The  object  of  this  last 
alteration  of  the  relative  value  of  the  precious  metals 
was  to  prevent  the  exportation  of  the  silver  coins. 

In  ancient  times,  alterations  in  the  relative  value  of 
the  two  metals  were  easily  produced  by  the  influx  of 
quite  moderate  amounts  of  either,  because  they  were 
then  principally  used  as  commodities,  and  their  value 
therefore  followed  the  natural  laws  that  govern  the 
value  of  commodities.  But  since  the  15th  century, 
after  commerce  took  some  development,  and  required 
large  amounts  of  the  precious  metals  as  money,  all  the 
alterations  in  the  relative  value  of  the  precious  metals 
have  been  in  one  uniform  direction,  up  to  the  influx  of 
gold  from  California  and  Australia,  viz  :  the  apprecia 
tion  of  gold  and  the  depreciation  of  silver.  This  fact 
is  very  significant,  and  explains  the  cause  of  these 
alterations.  Gold  being  the  most  valuable  metal,  is 
much  the  most  convenient  to  transport  and  to  handle  ; 
and  for  this  convenience,  so  long  as  gold  did  not  exist 
in  sufficient  quantity  to  suffice  for  all  transactions, 
many  persons  were  willing  to  pay  a  premium  for  it 
rather  than  be  inconvenienced  with  silver,  just  as  per 
sons  constantly  pay  a  premium  for  a  draft  on  another 
city  or  country  rather  than  carry  or  transmit  coin  or 
bank  notes.  In  both  these  cases  the  premium  paid  is 
a  mere  remuneration  for  the  services  rendered  by  the 
convenient  coin  or  draft  beyond  those  that  could  be 
rendered  by  the  inconvenient  coin.  It  does  not  indi- 


46  MONEY. 

cate  that  one  is  overvalued  or  undervalued,  nor  that  one 
will  purchase  more  commodities  than  the  other.  It  is 
simply  that  the  holder  of  the  convenient  coin  or  draft 
will  not  exchange  it  for  inconvenient  coin  unless  he 
receives  some  remuneration  for  the  inconvenience  or 
expense  he  may  incur  by  the  exchange.  Premiums  of 
this  nature  are  always  exceedingly  limited  in  amount, 
because  the  main  operations  of  commerce  are  invariably 
made  by  the  most  economical  means  possible.  When 
ever  the  premium  on  a  convenient  coin  is  greater  than 
the  expense  and  trouble  of  handling  and  transporting 
the  inconvenient  coin,  commerce  performs  all  its  opera 
tions  with  the  inconvenient  coin  rather  than  pay  the 
premium  for  the  convenient  one.  But  the  theorists 
could  not  discover  this  simple  reason  for  the  premium 
on  gold  in  former  times,  when  the  supply  was  inade 
quate  to  the  demand.  They  constantly  asserted  that 
the  premium  on  gold  was  an  indication  that  the  in 
trinsic  or  commercial  value  of  gold  had  risen,  and  they 
urged  the  governments  to  alter  their  legal  relative 
value  so  as  to  conform  with  their  intrinsic  value.  This 
undoubtedly  caused  the  numerous  alterations  that  took 
place,  each  nation  increasing  the  legal  value  of  gold  so 
as  to  retain  it  in  circulation.  But  every  increase  in  the 
relative  value  of  gold  still  left  this  metal  at  a  premium. 
The  partisans  of  the  theory  that  the  two  metals  could 
not  be  used  simultaneously  as  legal  standards,  saw  in 
this  constant  premium  on  gold  notwithstanding  govern 
mental  action,  proof  positive  that  governments  could 
not  regulate  their  relative  value  ;  whereas  the  fact  is 
that  increasing  the  value  of  gold  only  augments  the 
inducement  to  pay  a  premium  for  it,  since  it  increases 


MONEY.  47 

the  principal  advantage  gold  offers  over  silver — greater 
lightness  for  equal  value.  Were  gold  and  silver  coined 
at  1  to  30,  the  premium  on  the  former,  as  long  as  the 
quantity  in  existence  was  insufficient  for  all  transac 
tions,  would  be  greater  than  when  coined  at  1  to  15, 
because  half  the  weight  of  gold  would  then  perform 
the  same  service  as  twice  the  amount  did  before,  in 
comparison  with  silver.  As  soon  as  the  large  produc 
tion  of  gold  in  California  and  Australia  rendered  this 
metal  abundant,  the  premium  on  it  disappeared.  Here, 
again,  the  theorists  claimed  a  proof  of  the  correctness 
of  their  theory  ;  gold  was  evidently  falling  in  propor 
tion  to  silver,  as  they  had  predicted  ;  whereas  the  dis 
appearance  of  the  premium  only  indicated  that  gold 
had  become  sufficiently  abundant  to  supply  the  de 
mand,  which  was  clearly  not  the  case  before.  In  the 
United  States  there  lias  been  a  recent  striking  example 
of  a  similar  premium  being  paid  for  coin  on  account  of 
its  convenience,  irrespective  of  its  intrinsic  value.  After 
the  exportation  of  silver  had  drained  that  country  of 
its  small  silver  coins,  four  per  cent,  premium  was  paid 
for  the  old  Spanish  rials  and  half-rials  (12|  and  6J 
cent  pieces),  although  the  United  States  mint  had  as 
certained  and  announced  that  they  were  not,  on  an 
average,  worth  within  ten  per  cent,  of  their  nominal 
value,  in  consequence  of  their  loss  of  weight  by  wear 
and  tear.  And  exactly  as  in  Europe  with  gold,  the 
moment  United  States  silver  coins  became  sufficiently 
abundant  to  supply  all  the  wants  of  the  community, 
the  premium  on  the  small  Spanish  coins  entirely  disap 
peared. 

Sir  Isaac  Newton  had  recommended  that  the  guinea, 


48  MONEY. 

which  passed  current  at  21s.  6d.,  should  be  reduced 
lOcZ.  or  12d,  which  would  have  made  the  relative  value 
of  gold  and  silver  the  same  in  England  as  it  was  on  the 
continent  of  Europe.  His  advice  was  but  partially 
adopted,  the  guinea  being  only  reduced  to  twenty-one 
shillings,  which  was  still  too  high,  and  silver  conse 
quently  continued  to  be  exported  in  preference  to  gold. 
"  From  1717  to  1816  no  silver  coins  of  legal  weight  and 
purity  could  be  retained  in  circulation,  but  were  ex 
ported  to  foreign  countries,  where  they  passed  at  full 
value/'  *  What  was  this  full  value  that  attracted  silver 
from  England  to  foreign  countries  ?  Not  its  value 
elsewhere  as  a  commodity,  to  be  used  in  the  arts,  but 
its  legal  relative  value  to  gold  as  money  ;  in  other 
words,  the  fictitious  legal  relative  value  as  coin,  given 
it  in  other  countries  by  governments.  How  could  Eng 
land  retain  silver  when  15  fYcVo  ouncss  of  it  had  the 
same  value  there  as  one  ounce  of  gold,  whilst  on  the 
continent  of  Europe  one  ounce  of  gold  had  only  the 
same  legal  value  as  fifteen  ounces  of  silver  ?  The  ex 
portation  of  silver  after  the  suspension  of  specie  pay 
ments  by  the  Bank  of  England,  when  the  relative  legal 
value  on  the  continent  of  Europe  had  become  1  to  15}, 
was  caused  by  other  reasons  :  by  the  demand  for  the 
precious  metals  to  pay  the  British  armies  on  the  Conti 
nent  and  the  subsidies  to  the  Continental  powers.  This 
demand  was  so  imperious  that  the  legal  value  of  the 
precious  metals,  in  either  locality,  was  entirely  disre 
garded. 

It  was  the  arguments  against  the  two  standards  that 
led   Great  Britain,  in  1774,  to  adopt  gold  as  the  only 
*  Encyclopaedia  Britannica,  Money. 


MONEY.  49 

standard,  silver  being  made  a  legal  tender  only  for  sums 
of  £25  and  under.  During  the  French  Revolution,  the 
Legislature  of  France  repeatedly  discussed  the  question 
of  the  double  standard  at  great  length,  but  finally  main 
tained  the  double  standard,  which  was  very  generally 
used  by  all  European  nations  except  England. 

After  the  discovery  of  the  gold  mines  of  California, 
Michel  Chevalier  and  the  economists  in  general  revived 
the  old  theory  of  the  impossibility  of  maintaining  an 
uniform  relative  value  between  the  two  metals,  because, 
according  to  them,  every  increase  in  the  production  of 
either,  deranges  their  relative  value.  Mr.  Chevalier 
predicted  that  gold  would  fall  to  one  half  of  its  present 
value.  The  greatest  uneasiness  prevailed  everywhere 
in  consequence  of  the  apprehended  fall  in  the  value  of 
gold,  and  rise  in  the  value  of  silver.  Governments  were 
urged  to  demonetize  gold,  and  two  nations,  Holland  and 
Belgium,  actually  acted  on  this  suggestion  and  made 
silver  the  only  legal  tender.*  Every  trifling  fluctuation 
in  the  value  of  either  metal  was  immediately  accepted 
by  these  theorists,  without  examination  or  analysis,  as 
proof  positive  of  the  realization  of  their  predictions  ; 
whereas,  when  closely  analyzed,  they  all  prove  that  the 
theory  they  advanced  is  completely  erroneous.f  The 
following,  in  addition  to  long,  imposing  arrays  of  figures 

"  It  became  a  prevalent  belief,  that  a  marked  divergence  from  the  previ 
ous  scale  of  relative  values  existing  between  gold  and  silver  would  rapidly 
manifest  itself,  and  that  this  divergence  would  become  so  decided  that 
sound  policy  would  lead  to  the  substitution  of  silver  for  gold  as  a  standard 
metal  in  metallic  circulations.  It  was  in  pursuance  of  this  opinion  that 
Holland  demonetized  its  gold  coins."  (Toufce,  History  of  Prices,  vol.  vi, 

f  The  result  of  the  inquiries  instituted  seqms  to  justify  a  positive  opinion 
o 


50  MONEY. 

of  the  past,  present,  and  future  production,  existence, 
and  consumption  of  the  two  metals,  were  the  facts 
generally  appealed  to,  to  sustain  their  theories  : 

1st.  The  premium  paid  for  gold  when  scarce,  previous 
to  the  influx  of  gold  from  California  and  Aus 
tralia. 

2d.  The  disappearance  of  the  premium  on  gold  after 
the  influx  of  gold  from  the  Californian  and  Aus 
tralian  mines. 

3d.  The  discount  at  which  gold  bullion  and  foreign 
gold  coins  were  sold  in  1851  in  the  United  States 
and  in  Europe. 

4th.  The  premium  formerly  paid  in  the  United 
States  on  gold,  when  coined  as  1  to  15,  and 
that  subsequently  paid  there  on  silver,  when 
coined  as  1  to  16. 

5th.  The  premium  paid  for  silver  in  exchange  for 
gold,  after  1851. 

All  these  facts,  except  the  3d,  certainly  establish 
some  alterations  in  the  value  of  one  or  the  other  of  the 
precious  metals  ;  but  when  analyzed  with  care,  they  are 
found  to  maintain  our  theory,  and  not  that  which  we 
combat,  for  none  of  these  alterations  were  caused  by  a 
change  in  the  cost  of  production,  or  in  the  intrinsic 
value  as  commodities  of  either  of  these  metals.  The 
1st,  2d,  and  4th  of  these  facts  have  already  been  fully 
explained,  and  certainly  indicate  no  alteration  in  the 

that  the  fluctuating  increase  of  two  or  three  per  cent,  in  the  price  of  silver, 
as  compared  with  gold,  which  has  prevailed,  at  various  periods  since  1849, 
admits  of  being  fully  explained  by  circumstances  not  connected  with  a  fall 
in  the  value  of  gold."  (Tooke,  History  of  Prices,  vol.  vi,  p.  199.) 


MONEY.  51 

natural  relative  value  of  the  two  metals.  The  discount 
at  which  gold  bullion  and  foreign  gold  coin  were  sold 
for  a  time,  was  solely  caused  by  the  fact  that  the 
mints,  at  that  time,  were  nowhere  organized  to  coin 
promptly  the  enormous  amounts  of  gold  deposited  with 
them  for  that  purpose  ;  and  the  discount  was  a  mere 
allowance  to  compensate  the  loss  of  interest  caused  by 
the  delay  in  obtaining  the  coin  from  the  mints  in  ex 
change  for  the  gold  deposited.  This  is  clearly  proved 
by  the  fact  that  at  the  very  time  that  uncoined  gold 
was  selling  at  a  discount,  gold  coin  was  everywhere 
willingly  accepted,  at  par,  in  exchange  for  silver  at  par. 
Shortly  after  uncoined  gold  ceased  to  be  sold  at  a  dis 
count  iii  Paris,  the  Bank  of  France  refused  to  pay  out 
gold  except  at  a  premium  of  3  per  mille,  a  proof  that 
gold  was  still  generally  preferred  to  silver.  Therefore  it 
is  evident  that  the  discount  on  gold  bullion  and  foreign 
gold  coins,  was  also  no  indication  of  an  alteration  in  the 
natural  relative  value  of  the  precious  metals. 

The  5th  and  last  fact,  the  recent  premium  on  silver 
in  Europe,  was  the  consequence  of  the  large  and  con 
stant  balances  of  trade  which  England  had  to  pay  to 
Asia,  where  silver  alone  is  used  as  money.  England,  no 
longer  using  silver  as  a  legal  tender,  had  no  stock  of 
this  metal  from  which  to  supply  her  wants,  and  there 
fore  had  to  procure  that  metal  in  those  countries  where 
there  existed  a  stock  of  silver,  where  it  was  used  as  a 
legal  tender,  as  money.  But  the  apprehensions  of  a 
fall  in  gold  and  a  rise  in  silver,  created  by  the  argu 
ments  of  Michel  Chevalier  and  his  partisans,  induced 
the  Bank  of  France  and  the  other  large  holders  of  sil 
ver,  to  refuse  to  exchange  silver  for  gold  at  par.  The 


52  MONEY. 

English  were  thus  forced  to  resort  to  the  money  changers 
of  the  Continent,  who,  by  paying  a  slight  premium  for 
oilver,  obtained  in  exchange  for  gold,  the  amounts  re 
quired  by  England  to  liquidate  the  balances  of  trade 
due  to  Asia.  But  in  1861,  the  demand  for  silver  for 
Asia  diminished  so  much  that  the  premium  on  this 
metal  disappeared  in  July  of  that  year,  and  the  Bank 
of  France  again  paid  it  out  in  preference  to  gold.  Pre 
vious  to  this,  however,  between  the  1st  of  July,  1853, 
and  the  1st  of  January,  1856,  the  Bank  of  France  had 
purchased  abroad  gold  to  the  amount  of  1,363  millions 
of  francs,  for  ivliicli  it  paid  14  millions  of  francs  as 
premiums,  say  over  one  per  cent.,  so  as  to  enable  it  to 
retain  its  stock  of  silver  !  *  and  it  paid  this  premium  of 
one  per  cent,  for  gold,  at  the  very  time  this  metal  was 
said  to  be  falling  in  value,  and  whilst  the  Bank  paid  it 
out  at  par  !  This  is  one  result  of  attempting  to  arrest 
or  counteract  a  natural  law  !  It  must  not  be  forgotten, 
that  at  the  very  moment  that  the  premium  on  silver 
disappeared,  the  relative  stock  of  gold  was  greater,  and 
that  of  silver  less,  than  at  any  time  previous  while 
silver  was  at  a  premium  ;  and  the  production  of  gold 
was  then  greater  than  at  any  previous  moment.  It  is, 
therefore,  very  evident  that  the  premium  on  silver,  also, 
was  no  proof  of  any  change  in  the  natural  relative 
value  of  the  precious  metals.  That  the  premium  on 
silver  was  entirely  due  to  the  demand  for  Asia,  is  not 
only  proved  by  the  fact  that  the  premium  disappeared 
as  soon  as  the  demand  for  Asia  diminished,  but  also 
by  the  following  statistics  : 

The  exportations  of  silver  from  France  from  1852  to 

*  M.  Chevalier,  De  la  baisse  probable  de  Tor,  p.  42. 


MONEY.  53 

1859,  inclusive,  exceeded  the  importations  by  frs.  1,378,- 
862,000  ($275,750,000).  The  total  exportation*  of 
silver  from  France  during  the  same  period  being 
frs.  2,505,813,178  ;  *  whilst  the  exportations  of  silver 
from  England  and  the  Mediterranean  ports,  for  China 
and  the  East  Indies,  during  those  years,  were  frs.  1,917,- 
500,000,f  say  76J-  per  cent,  of  the  entire  exports  from 
France.  If  we  take  only  the  years  1856  to  1859,  in 
clusive,  the  exportations  of  silver  from  England  and  the 
Mediterranean  ports  for  China  and  the  East  Indies, 
amount  to  93  per  cent,  of  the  entire  export  of  silver  from 
France  in  those  years.  Mr.  Chevalier  himself  admits 
"  that  the  value  of  silver  has  risen  at  present,  because 
the  demand  for  the  metal  has  been  suddenly  increased 
for  a  special  destination,  for  exportation  to  Asia."  J 

The  large  exportation  of  silver  from  France,  where 
it  was  worth  a  premium,  toward  Asia  where  it  only 
circulates  at  its  former  value,  is  another  conclusive 
proof  that  the  premium  paid  for  silver  was  not  caused 
by  an  increase  in  the  intrinsic  or  natural  value  of  silver  ; 
and  also,  that  the  value  of  the  precious  metals  is  not 
governed  by  the  same  natural  laws  that  govern  the  value 
of  other  things.  If  the  same  laws  controlled  the  value  of 
gold  and  silver,  that  control  the  value  of  commodities, 
how  could  such  large  exportations  from  France,  of  a 

*  Revue  Contemporaine,  15  Mars,  1860,  p.  12. 

f  Circular  of  Mr.  Low,  of  London,  January  1,  1861. 

\  De  la  baisse  probable  de  Tor,  p.  59.  "  It  will  be  found  that  the 
variations  in  the  price  of  silver  follow  the  variations  in  the  shipments  of  sil 
ver  to  the  East.  ...  We  find  that  the  rise  in  the  price  of  silver  is  manifestly 
connected  with  the  large  and  extraordinary  demand  for  silver  as  an  articlo 
of  remittance  to  India  and  China  in  payment  for  commodities."  (Took* 
History  of  Prices,  vol.  vi,  pp.  675,  676.) 


54  MONEY. 

metal  that  country  does  not  produce,  have  caused  so 
slight  a  variation  in  its  value  as  that  which  has  oc 
curred  ?  Mr.  Chevalier  himself  admits  that  "  at  this 
moment  the  depreciation  of  gold  in  comparison  to  silver 
is  very  small.  .  .  .  It  is  even  remarkable  that  the  fall  in 
gold,  as  compared  with  silver,  has  been  thus  far  almost 
imperceptible.  In  this  respect,  all  the  anticipations 
which  appeared  most  certain  have  experienced  a  post 
ponement  which,  at  first  sight,  would  appear  to  over 
throw  the  theory,  but  which  however  is  not  inexplica 
ble."*  The  only  explanation,  however,  given  by  Mr. 
Chevalier,  of  the  non-fulfilment  of  his  predictions,  is  that 
France,  by  permitting  the  exchange  of  her  silver  for 
gold,  has  been  a  parachute  to  retard  the  fall  of  gold  ! 
How  could  the  premium  on  silver  be  maintained  after 
the  liquidation  of  the  balance  of  trade  in  favor  of  Asia  ? 
Certainly  not  from  a  demand  for  coinage  from  England, 
Switzerland,  Belgium,  Portugal,  Spain,  Eussia,  Brazil, 
or  the  United  States,  for  in  all  these  countries  gold  is  a 
legal  tender,  and  facilitates  the  exchanges  of  commodi 
ties  better  than  silver,  which,  in  most  of  these  countries, 
is  now  a  legal  tender  for  small  amounts  only,  being  only 
coined  to  a  limited  amount  exclusively  for  government 
account,  at  a  higher  value  than  its  legal  value  in  France. 
Certainly  not  from  the  demand  for  consumption  in  the 
arts,  for  the  annual  production  of  the  silver  mines  great 
ly  exceeds  the  demand  for  that  purpose. 

The  British  Government  evidently  committed  a  great 
error  in  not  encouraging  the  circulation  of  gold  in  India 
Instead  of  doing  this,  the  East  India  Company,  appar 
ently  from  fear  of  the  impending  fall  in  the  value  of 

*  De  la  baisse  probable  de  1'or,  p.  228. 


MONEY.  55 

gold  predicted  by  Mr.  Chevalier,  sent  instructions  to 
India  to  refuse,  in  payment  of  taxes,  the  gold  mohurs 
which  had  been  hitherto  received,  and,  to  accept  noth 
ing  but  silver.*  If  the  East  India  Company,  instead  of 
discouraging  the  circulation  of  gold,  had  coined  the 
metal  in  India,  and  made  it  a  legal  tender  there,  this 
convenient  metal  would,  probably,  not  only  have  been 
introduced  into  general  circulation  in  India,  but  also 
eventually  into  China,  owing  to  the  constant  intercourse 
between  those  countries.  In  that  event,  instead  of  trans 
porting,  as  now,  the  greater  part  of  the  production  of 
the  Australian  mines  to  England,  to  be  thence  taken  to 
the  continent  of  Europe,  where  it  is  exchanged  for  silver 
at  a  premium,  which  silver  is  then  carried  to  India,  the 
gold  of  Australia  would  go  direct  to  India  and  China, 
thereby  saving  heavy  expenses  and  loss  of  interest, 
whilst  Europe  would  not  feel  alarm  at  the  prospect  of 
losing  her  silver. 

*  "  A  gold  coin  was  introduced,  1st  September,  1835,  called  a  '  mohur,' 
equal  to  fifteen  rupees,  worth  11.  9s.  2d.  Previous  to  1st  September, 
1835,  gold  as  well  as  silver  was  a  legal  tender  in  India ;  but  under  the  law 
of  1835,  silver  was  adopted  as  the  exclusive  standard.  In  1841,  however, 
the  Indian  Government  found  it  expedient  to  authorize  their  collectors  to 
receive  gold  mohurs  whenever  tendered.  But  in  December,  1852,  a  public 
notification  was  issued,  that  gold  coins  would  be  no  longer  received  by  the 
public  officers.  The  effect  of  this  modification,  which  is  still  in  force,  is 
again  to  render  silver  the  single  standard  metal  in  India.  The  origin  of 
the  change  of  December,  1852,  is  said  to  have  been  a  somewhat  sudden 
increase  in  the  quantity  of  gold  coin  tendered  by  the  public,  and  an  appre 
hension,  on  the  part  of  the  Government,  that  they  might  possibly  be  led 
into  the  predicament  of  having  to  accept  all  payments  made  to  them  in  gold 
as  the  cheapest  metal,  and  to  make  all  payments  to  others  in  silver,  the 
dearer  metal,  and  the  only  legal  tender.  The  question  is  an  intricate  one  ; 
but  it  seems  probable  that  the  notification  of  December,  1852,  was  some 
what  hastily  adopted."  (Tooke,  History  of  Prices,  vol.  vi,  pp.  722,  723.) 


CHAPTEE  Y. 

IT  is  evident  that  the  advent  of  gold  could  not  in 
crease  the  value  of  silver.  Both  metals  being  used  for 
the  same  purpose,  and  gold  being  the  most  convenient, 
and,  therefore,  generally  preferred,  as  soon  as  the  stock 
of  gold  sufficed  for  all  the  wants  of  the  community,  silver 
would  have  been  less  used  than  formerly,  and  consequent 
ly  would  have  fallen  in  value,  were  it  not  a  legal  tender. 
In  any  event,  both  metals  being  principally  used  as 
money,  as  instruments  of  exchanges,  gold  could  not  fall 
in  value  in  consequence  of  an  increased  production,  with 
out  producing  a  corresponding  fall  in  the  value  of  silver, 
as  long  as  both  metals  were  used  as  money,  at  their 
former  relative  legal  value.  It  is  surprising  that  so 
eminent  an  economist  as  Mr.  Chevalier  should  have 
failed  to  perceive  that  if  a  redundancy  of  money  depre 
ciates  its  exchangeable  value,  the  depreciation  will  affect 
equally  all  the  currencies  that  are  current  in  the  com 
munity,  no  matter  which  may  be  the  one  that  is  in 
creased  in  quantity.  In  a  community  where  gold,  silver, 
and  convertible  bank  notes  circulate,  it  is  perfectly  im 
material  which  of  these  currencies  is  increased.  If  gold, 
from  over  supply,  should  diminish  in  value,  silver  and 
bank  notes  would  experience  the  same  depreciation. 


MONEY. 


57 


although  the  quantity  of  the  latter  currencies  in  circu 
lation  be  not  increased,  nay,  even  if  they  were  dimin 
ished,  for  if  the  volume  of  the  currency  affects  its  value, 
it  must  be  the  aggregate  amount,  and  not  the  amount 
of  any  one  of  the  several  currencies,  that  must  regulate 
its  value.  In  all  communities  where  several  currencies 
exist,  the  one  least  desired  or  most  easily  or  economical 
ly  obtained,  is  invariably  most  used,  and  thus  maintains 
its  value  and  prevents  the  rise  of  the  other  currencies. 

All  ''variations  in  the  value  of  mixed  currencies,  as 
long  as  they  all  remain  a  legal  tender  or  are  willingly 
accepted,  is  expressed  tfr  shown  by  a  premium  on  the 
preferred,  and  not  by  a  discount  on  the  less  desired 
currency. 

Mr.  Chevalier,  whilst  advocating  the  adoption  by  all 
European  nations  of  silver  as  the  standard,  denies  that  he 
desires  to  have  gold  abandoned  as  money.  He  proposes 
that  gold  should  be  coined,  by  stamping  on  the  coins 
the  weight  and  fineness  of  the  metal  they  contain,  and 
that  they  should  then  be  received  and  paid  by  the  com 
munity,  either  at  their  daily  value  at  the  several  ex 
changes,  measured  by  silver,  or  at  the  value  that 
governments  should,  periodically,  establish.  Had  he 
reflected  that  nothing  that  fluctuates  constantly  in 
nominal  value  can  properly  perform  the  functions  of 
money,  he  would  have  perceived  that  this  idea  was  im 
practicable,  and  would  simply  result  in  the  demonetiza 
tion  of  gold,  to  the  great  inconvenience  of  all  communi 
ties,  as  they  would  thus  lose  the  use  of  the  most  conven 
ient  metallic  currency.  The  withdrawal  of  gold  from  cir 
culation  could  not  fail  to  create  serious  disturbances  in 
the  operations  of  commerce  and  industry,  for  the  value 
3* 


58  MONEY. 

of  all  things  would  then  have  to  be  measured,  and  all 
exchanges  would  have  to  be  carried  on  with  one  metal 
alone,  silver,  the  stock  of  which  is  evidently  insufficient 
for  all  the  requirements  of  the  world.  Holland  at 
tempted  to  use  gold  coins  having  no  fixed  value,  and 
the  result  was,  as  we  predicted  before  the  experiment 
was  made,  that  after  about  200,000  florins  had  been 
coined,  the  demand  ceased  entirely  !  Michel  Chevalier 
acknowledges  that  commerce,  in  consequence  of  their 
uncertain  value,  makes  little  use  in  Holland  of  these 
new  gold  coins."  *  Germany  made  the  same  experiment, 
with  similar  results. f 

Everything  indicates  that  the  advantages  of  the 
demonetization  of  gold  are  purely  imaginary.  The 
main  argument  for  demonetizing  gold  is  that  the  large 
production  of  this  metal  at  present  will  reduce  its 
value.  But  will  its  demonetization  prevent  the  fall  of 
gold  if  it  must  take  place  ?  Evidently  not ;  on  the  con 
trary  it  would  hasten  and  increase  the  fall  greatly,  for 
the  enormous  amount  now  used  as  coin  would  then  all 
be  offered  for  consumption  as  a  commodity,  and  as  the 
yearly  consumption  in  the  arts  is  at  present  but  a  small 
portion  of  the  annual  production  of  the  mines,  gold 

*  De  la  baisse  probable  de  1'or,  p.  89. 

f  "  Holland  and  Germany  attempted  to  retain  gold  in  circulation  with 
out  giving  it  a  fixed  value.  In  one  case  the  value  was  to  be  settled  by  the 
parties  in  interest  when  used  ;  in  the  other  it  was  to  pass  current  at  rates  to 
be  announced  every  six  months  by  the  governments.  But  these  states  do 
not  appear  to  have  succeeded  in  retaining  in  circulation  an  amount  of  gold 
worth  mentioning."  (E.  de  Parieu,  Revue  Conternporaine  of  Paris,  15th 
March,  1860,  p.  13.) 

"  In  Holland  and  in  Belgium,  gold  continues  to  circulate,  but  simply  as 
a  commodity  whose  value  is  daily  adjusted  by  commerce,  and  consequently 
it  is  but  little  used:'  (Michel  Chevalier,  De  la  baisse  probable  de  1'or,  p.  89.) 


MONEY.  59 

would  have  to  fall,  not  only  to  a  price  that  would  arrest 
all  further  production  for  the  present,  but  even  to  one 
so  much  below  the  cost  of  production  as  to  tempt  cap 
italists  to  purchase  and  store  it  until  needed  for  con 
sumption.  Imagine  the  fall  that  would  have  to  take 
place  to  induce  capitalists  to  purchase  a  commodity 
that  might  remain  on  their  hands  twenty,  thirty,  or 
forty  years,  according  as  the  demand  might  be  stimulat 
ed  by  the  reduction  of  price  ! 

Mr.  Chevalier  says  that  if  the  plan  be  adopted  of 
regulating  the  value  of  gold  by  periodical  government 
edicts,  the  individual  members  of  the  community  need 
only  hold,  at  those  periods,  such  amount  of  gold  as 
they  chose  !  *  How  could  this  be  done  ?  All  that  ex 
ists  must  be  held  by  somebody.  What  one  sells,  an 
other  must  buy.  And  by  attempting  to  sell  at  the 
approach  of  those  periods,  the  fall  in  value  would  proba 
bly  exceed  the  depreciation  that  would  be  announced 
by  the  government  edict,  so  that  instead  of  escaping 
the  loss  by  selling  the  gold  before  these  periods,  it  is 
probable  it  would  only  aggravate  it. 

The  production  of  the  two  metals  was  formerly  1  oz. 
of  gold  to  46  oz.  of  silver ;  whereas  in  1853  it  was 
1  oz.  of  gold  to  4  oz.  of  silver  ;  and  yet  no  fluctuations 
in  value  exceeding  3  or  4  per  cent,  have  ever  taken  place 
since  this  great  change  in  the  relative  production  of  the 
precious  metals  ;  f  and  all  these  fluctuations  were  clear 
ly  caused  by  other  reasons  than  a  change  in  the  value 

*  DC  la  baisse  probable  de  1'or,  p.  235. 

f  "  The  production  of  gold  from  1800  to  1848  was  equal  to  fifty-eight  per 
cent,  of  the  total  stock  in  1 800,  without  affecting,  in  any  way  that  can  be 
discovered,  the  relative  value  of  gold."  (Tooke,  History  of  Prices,  vpl,  vi, 
p.  232.) 


60  MONEY. 

of  gold  as  a  commodity.  If  so  great  an  alteration  in 
the  relative  production  of  the  two  metals  has  produced 
no  alteration  in  their  relative  value,  is  it  probable  that 
any  future  alteration  in  their  production  can  produce 
any  effect  so  long  as  both  metals  continue  to  be  princi 
pally  used  as  money  ? 

Belgium  demonetized  gold,  but  reaclopted  'it  in 
1861,  making  both  metals  once  more  a  legal  tender,  at 
the  urgent  and  reiterated  requests  of  her  commercial 
and  industrial  interests,  and  in  defiance  of  the  opinion 
of  the  theorists.  The  fact  is,  the  advantages  of  the 
double  standard  are  so  great,  that  all  the  countries 
that  use  gold  as  the  onty  legal  standard,  invariably  coin 
silver,  slightly  debased,  and  make  it  a  legal  tender  for 
limited  amounts.  The  discarded  metal  thus  still  forms 
a  more  or  less  considerable  portion  of  the  currency. 
In  England,  for  example,  the  silver  in  circulation  forms 
a  fifth  or  a  sixth  of  the  whole  metallic  currency. *  Is 
not  this  currency  given  to  silver  where  gold  alone  is 
made  the  legal  standard,  an  ample  acknowledgment 
of  the  superiority  of  the  double  standard  ?  The  act  of 
1844  authorizes  the  Bank  of  England  to  hold  in  the 
issue  department  silver  to  the  extent  of  one  fourth 
of  the  amount  of  gold  bullion  and  coin  held  at  any 
particular  time.  Sir  Eobert  Peel,  in  presenting  the 
bill  of  1844,  said  that  a  certain  portion  of  the  bank 
issues  would  be  allowed  to  be  on  silver  bullion,  "  as  the 
export  of  silver  bullion  was  a  proper  remedy  for  the  in- 

*  "The  amount  of  gold  in  circulation  in  Great  Britain,  including  that 
in  the  Bank  of  England,  is  variously  estimated  at  from  forty-four  to  sixty 
millions  sterling.  The  silver  is  estimated  at  £11,000,000,  but  that  includes 
the  coin  in  the  colonies."  (Gilbart  on  Banking.) 


MONEY.  61 

convenience  of  our  standard  differing  from  that  of 
other  nations.  It  was  therefore  of  great  importance  to 
insure  such  a  stock  of  silver  in  this  country  as  might 
meet  the  wants  of  merchants  and  prevent  their  having 
to  send  to  tie  Continent  for  it"  *  The  committee  of  the 
House  of  Lords  of  1847  recommended  that  the  act  of 
1844  be  amended  so  that  the  issues  of  bank  notes  on 
silver  might  be  extended."  f  John  Horsley  Palmer, 
Esq.,  then  a  director  of  the  Bank  of  England,  in  1848 
testified  before  a  committee  of  the  House  of  Commons 
that  one  of  his  objections  to  the  bank  act  of  1844,  "is 
the  li-nitntion  of  the  quantity  of  silver  bullion  permit 
ted  to  be  held  in  the  issue  department  :  seeing  that 
silver  is  equally  available  with  gold  for  foreign  pay 
ments,  a  portion  of  that  restriction  might,  with  perfect 
safety,  be  withdrawn,  and  thereby  greater  facilities  af 
forded  in  meeting  an  unfavorable  exchange."  J. 
Pease,  Esq.,  testified  before  the  same  committee  that  he 
paid  wages  to  the  extent  of  £10,000  to  £15,000  per 
month,  and  added,  "  I  should  like  to  see  silver  a  legal 
tender  to  a  larger  amount — £200,  or  at  least  £100." 
Mr.  Thomas  Baring  said,  in  a  speech  in  Parliament  in 
1848;  "  I  know  an  instance  in  1847  where  it  was  found 
impossible  to  raise  a  penny  upon  £603000  worth  of 
silver,  a  precious  metal,  a  legal  tender  in  most  parts  of 
the  civilized  world.  It  was  not  a  question  of  price  with 
the  bank,  but  a  question  affecting  its  own  safety.  The 
bank  could  only  issue  notes  on  silver  to  the  extent  of 
one  fifth  of  the  bullion  in  the  bank,  and  as  they  had 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  p.  297. 
f  Tooke,  History  of  Prices,  vol.  v,  p.  492. 


62  MONEY. 

not  a  sufficient  amount  of  gold  to  be  within  this  limi 
tation,  they  could  not  purchase  the  silver."  * 

It  is  self-evident  that  there  are  great  disadvantages 
in  the  adoption  by  different  countries  of  different  metals 
as  the  legal  standard.  How  could  France,  were  she 
to  adopt  silver  as  the  only  legal  standard,  liquidate  a 
balance  of  trade  in  favor  of  England,  where  gold  alone 
is  a  legal  tender  ?  And  how  could  England  then  liqui 
date  a  balance  of  trade  in  favor  of  France  ?  Such  a 
state  of  things  would  render  the  legal  money  of  both 
countries  useless  as  means  of  liquidating  balances  of 
trade  in  favor  of  the  other,  and  yet  this  is  one  of  the 
most  important  functions  of  coin  at  the  present  day. 
And  this  would  be  compensated  by  no  advantage,  for 
the  resort  to  a  single  standard  cannot  prevent  the  ex 
portation  of  the  metal  used  as  the  standard,  whenever 
it  is  required  in  other  countries  ;  it  only  adds  to  the 
inconvenience  produced  by  the  exportation,  as  the  metal 
exported  cannot  be  replaced  by  the  other,  as  when  the 
the  double  standard  is  used.f  When  England  has  to 
pay  silver  to  Asia,  where  can  England  obtain  it,  except 
in  the  countries  where  it  exists  in  abundance  ?  and 
that  is,  invariably,  the  countries  where  it  is  used  as  a 

*  Alison's  History  of  Europe,  vol.  viii,  p.  101,  American  edition. 

•j-  "  Belgium,  as  is  well  known,  has  demonetized  gold  :  the  measure  was 
a  good  one  (  ! !  ),  and  yet  that  country  has  also  suffered  from  the  exporta 
tion  of  its  silver  coin."  (R.  de  Fontenay,  Journal  des  Economistes,  June, 
1860,  p.  396.) 

"  Germany,  that  uses  silver  almost  exclusively,  has  found  it  very  diffi 
cult  to  prevent  the  exportation  to  England,  via  Hamburg,  of  this  sole 
metallic  circulation."  (E.  de  Parieu,  Ilevue  Contemporame,  15th  March, 
1860,  p.  14.) 


MONEY.  G3 

legal  tender  ;  for  to  those  countries  alone,  where  it  is  a 
legal  tender  at  its  full  value,  does  either  metal  flow. 

As  each  of  the  precious  metals  offers  peculiar  ad 
vantages  for  special  purposes,  it  is  the  interest  of  all 
nations  that  both  should  be  universally  coined  and 
used  as  legal  tenders.  Why  should  governments  re 
fuse  to  render  the  service  of  certifying  the  quantity 
and  quality  of  either  of  the  precious  metals,  which  is 
all  they  do  by  coining  them,  merely  because  it  may  be 
at  a  premium  for  exportation  ?  Does  not  the  foreign 
trade  merit  assistance  and  protection  as  well  as  the 
home  trade  ?  If  a  premium  on  a  metal  be  a  sufficient 
reason  to  cease  to  coin  it,  the  owners  of  the  bullion  will 
cease  to  carry  it  to  the  mint  to  be  coined.  But  it  is 
absurd  to  enact  a  law  forbidding  the  state  from  render 
ing  this  service,  when  the  owners  of  the  bullion  request 
it,  whatever  be  the  use  they  may  afterward  make  of 
the  coin. 

To-day  there  is  more  danger,  despite  all  the  argu 
ments  of  Michel  Chevalier  and  his  partisans,  that  silver 
will  be  universally  demonetized  than  gold,  for  already 
Kussia,  Portugal,  and  Chili  have  followed  the  example 
of  England,  making  gold  the  only  legal  standard.  In 
Switzerland  and  the  United  States,  both  gold  and  silver 
are  yet  a  legal  tender,  but  the  fractions  of  the  dollar 
in  the  United  States,  and  the  coins  under  5  francs  in 
Switzerland,  are  only  a  legal  tender  for  limited  amounts, 
being  slightly  debased,  and  coined  solely  for  account  of 
the  government.  There  can  be  no  serious  objections 
to  the  system  adopted  by  the  United  States  and  Swit 
zerland,  if  the  debased  coins  were  redeemed  by  the 
governments  that  issue  them,  whenever  presented  for 


64  MONEY. 

that  purpose,  so  as  to  prevent  over  issues.  This  should 
also  be  d*ne  in  regard  to  all  copper  and  nickel  coins, 
which  are  generally  issued  by  the  mints  at  a  much 
higher  value  than  that  of  the  metal  they  contain. 

Mr.  Chevalier  says  the  exchange  of  silver  at  a 
premium  for  gold  at  par  is  a  disastrous  exchange  for 
France  !  *  How  so  ?  Does  a  country  ever  export 
what  is  needful  to  the  well-being  of  its  own  inhabit 
ants  ?  The  fact  that  a  product  or  a  precious  metal 
is  exported  in  exchange  for  something  else,  is  proof 
positive  that  both  parties  to  the  exchange  are  bene 
fited  thereby,  for  otherwise  the  exchange  would  not 
be  made.  Every  commercial  operation  is  made  because 
it  is  supposed  to  be  advantageous  by  both  seller  and 
buyer.  All  commercial  transactions,  freely  repeated, 
must  be  advantageous  to  the  individuals  making  them, 
and,  consequently,  to  the  nations  of  which  they  are 
citizens  ;  for  the  prosperity  of  a  nation  depends  entirely 
on  the  prosperity  of  the  individuals  composing  the 
nation.  The  idea  that  there  can  be  a  national  interest 
distinct  from  individual  interest,  is  a  legacy  of  the  olden 
times,  which  political  economy  is  slowly  destroying  ;  but 
unfortunately  the  error  yet  exists  in  the  minds  of  many 
considered  intelligent  and  enlightened  ! 

Mr.  de  Parieu  also  says  that  the  community  in 
France  suffers  from  the  exchange  of  silver  at  a  premi 
um  for  gold  at  par ;  and  yet  he  subsequently  acknowl 
edges  that  the  gold  received  renders  the  same  services 
as  the  silver  given  in  exchange. f  Furthermore,  he 
asserts  that  the  scarcity  of  silver  has  induced  the  coun 
terfeiting  of  silver  coins  !  J  But  he  admits,  subsequently, 

*  De  la  baisse  probable  de  Tor,  p.  190. 

f  Revue  Contemporaine,  16th  March,  1860,  p.  14.  \  Ib.,  p.  15. 


MONEY.  65 

he  has  also  heard  of  some  cases  of  counterfeiting  the 
gold  coins.*  He  asserts  that  the  exportation  of  silver 
from  France  is  the  consequence  of  the  rise  in  value  of 
that  metal ;  f  whereas,  evidently,  the  rise  in  the  value 
of  silver  is  the  consequence  of  the  demand  for  that 
metal  for  exportation,  for  the  moment  that  demand 
•  ceased,  silver  fell  to  its  former  value. 

Mr.  de  Parieu  quotes  the  following  extract  from  a 
report  of  the  Federal  Council  of  Switzerland  :  "  There 
yet  remains  in  France  about  1,000  millions  of  silver, 
and  if  the  French  Government  does  not  delay  too  long, 
it  may  secure  for  its  own  benefit  the  profit  which  specu 
lators  will  otherwise  obtain/'  J  But  to  whom  does  this 
silver  belong  ?  to  the  government,  or  to  the  individual 
holders  ?  If  to  the  latter,  why  should  they  not  profit 
by  the  rise  in  its  value,  if  there  be  any  ?  By  what  right 
can  the  government  claim  it  ? 

Mr.  de  Fontenay  says,  silver  is  the  preferable  stand 
ard,  because  it  cannot  vary  in  value  as  much  as  gold, 
as  the  cost  of  production  of  silver  is  greater  than  that 
of  gold.  §  Is  not  the  talented  editor  of  BaGtiat's  works 
advancing  here  the  very  doctrine  so  admirably  and  so 
wittily  refuted  by  Bastiat  in  his  Sophismes  Economiques, 
"  that  fertility  is  injurious— that  abundance  and  cheap 
ness  are  disadvantageous — scarcity  and  dearness  desir 
able  "  ? 

Had  France,  when  gold  was  scarce  and  at  a  pre 
mium,  attempted  to  introduce  it  largely  into  her  circu 
lation  by  increasing  its  legal  value,  she  would  have  lost 

*  Revue  Contemporaine,  16th  March,  1860,  p.  16. 
f  Journal  des  Eoonomistes,  April,  1860  p   1 
t  Ib.,  p.  16.  • 
§  Ib.,  June,  1860,  p.  398. 


66  MONEY. 

the  premium  she  would  have  had  to  pay  for  the  gold, 
at  the  same  time  that  she  would  have  driven  to  other 
countries,  as  was  the  case  with  the  United  States,  the 
silver  she  has  since  sold  at  a  premium  in  exchange  for 
gold  at  par.  We  have  here  an  evidence  of  the  advan 
tages  to  be  derived  by  allowing  things  to  take  their 
natural  course,  without  interference  from  human  laws 
and  regulations. 

From  what  precedes  it  follows  : 

1st.  That  money  is  the  measure  of  the  relative 
value,  or  rather  the  common  denominator  of  the  value, 
of  all  things  except  itself. 

2d.  That  the  value  of  money  can  only  be  measured 
by  its  exchange  for  other  things.  It  is  just  as  impossi 
ble  to  measure  the  value  of  money  by  money  itself,  or 
by  the  bullion  of  which  it  is  made,  as  to  measure  the 
value  of  a  bushel  of  wheat  by  another  bushel  of  the 
same  wheat,  or  to  ascertain  the  value  of  a  fraction  of 
which  the  denominator  alone  is  given.  * 

3d.  That  if  money  cannot  measure  the  value  of 
money,  it  is  just  as  impossible  to  measure  the  value  of 
gold  coin  by  silver  coin,  or  vice  versa,  so  long  as  they 
are  both  a  legal  tender,  as  to  measure  the  value  of  a 
bushel  of  wheat  by  the  value  of  two  half  bushels  of  the 
same  wheat. 

*  "  When  the  coin  is  of  full  weight,  and  the  mint  charges  nothing  for 
coinage,  coin  and  bullion  must  be  of  precisely  equal  value,  and  cannot 
measure  one  another.  We  might  as  well  talk  of  the  weight  of  water  in 
water,  or  of  the  value  of  lead  in  lead,  as  of  the  price  of  gold  in  gold.  Were 
an  ounce  of  gold  to  fall  one  tenth  of  its  present  cost  of  production,  or  to 
cost  ten  times  as  much  labor  as  it  does  now,  still,  while  the  regulations  of 
the  mint  are  unaltered,  it  will  be  worth  31.  17s.  !Q±d."  (Edinburgh  Re 
view,  October,  1846,  p.  89.) 


MONEY.  67 

4th.  That  the  relative  value  of  the  precious  metals, 
as  long  as  used  as  money,  depends  entirely  on  the  re 
lative  value  at  which  governments  make  them  a  legal 
tender  ;  but  this  legal  relative  value  in  one  country 
affects  their  relative  market  value  in  another  country, 
when  there  is  a  balance  of  trade  to  be  liquidated  in  coin, 
arid  the  relative  legal  value  is  not  uniform  in  both  coun-. 
tries.  If  the  difference  in  the  relative  legal  value  of  the 
two  metals  in  two  countries  be  sufficiently  large,  it  may 
even  cause  one  to  be  exported  without  regard  to  the 
balance  of  trade,  in  which  case  one  metal  would  con 
stantly  be  worth  more  than  its  legal  value  in  the  coun 
try  where  it  was  valued  lowest. 

The  true  and  only  effectual  remedy  for  all  variations 
in  the  relative  value  of  gold  and  silver  would  be  a  con 
gress  of  all  the  commercial  nations,  to  adopt  one  uni 
form  relative  value  for  the  two  metals,  both  of  which 
should  be  used  everywhere  as  legal  tenders,  for  it  cannot ' 
be  doubted  that  two  useful  instruments  are  preferable 
to  one.  Once  establish  everywhere  a  uniform  rela 
tive  value  between  gold  and  silver,  and  make  them 
both  a  legal  tender  in  all  commercial  countries,  and 
immediately  all  variations  in  their  relative  value  will 
disappear,  because  either  metal  will  then  liquidate  equal 
ly  well  a  balance  of  trade  at  any  point.  Gold,  being  the 
most  convenient  to  transport,  will  be  generally  preferred 
for  foreign  payments,  and,  consequently,  without  debas 
ing  them,  there  will  be  no  tendency  to  export  the 
smaller  silver  coins  indispensable  to  the  convenience  of 
local  exchanges.  The  same  congress  might  also  adopt 
some  universal  system  of  coinage  that  would  prevent  the 
present  needless  expense  of  recoining  foreign  coins 
when  received  in  liquidation  of  balances  of  trade.  This 


68  MONEY. 

desirable  object  can  be  far  more  readily  attained  than 
is  generally  supposed.  In  Spain,  in  Mexico,  and  in  all 
the  republics  of  South  America,  accounts  are  kept  in 
dollars  varying  little  or  not  at  all  from  the  milres  in 
which  accounts  are  kept  in  Brazil  and  Portugal,  and 
from  the  rix-thalers  in  which  they  are  kept  in  Denmark 
arid  Sweden.  The  Austrian,  Saxon,  and  Lubec  rix- 
thalers,  as  well  as  "the  Roman,  Venetian,  and  Sicilian 
scudos,  and  the  Parma  ducat,  all  have  nearly  the  same 
value  as  the  Spanish  dollars.  In  France,  Belgium, 
Switzerland  and  Sardinia,  accounts  are  kept  in  francs 
of  a  perfectly  uniform  value,  and  in  England  in  pounds 
sterling,  represented  by  the  sovereign.  There  is  at  pres 
ent  but  a  very  trifling  difference  in  the  value  of  a  sov 
ereign,  5  dollars,  milres,  rix-thalers,  scudos,  or  ducats, 
and  25  francs.  If  the  different  nations  would  only 
agree  that,  hereafter,  25  francs,  5  dollars,  milres,  rix-tha 
lers,  scudos,  or  ducats,  and  a  sovereign,  should  contain 
precisely  the  same  quantity  of  fine  gold,  or  a  relative 
quantity  of  fine  silver,  at  the  relative  value  of  the  two 
metals  which  shall  be  fixed  by  the  congress,  these  several 
coins  or  moneys,  and  their  several  fractions,  could  there 
after  be  made  a  legal  tender  everywhere,  and  they  would 
all  form  a  round  sum  in  the  money  of  every  other  coun 
try;  so  that  with  the  exception  of  Russia,  some  portions 
of  Germany,  and  possibly  some  portions  of  Italy,  all 
civilized  nations  might  retain  the  present  denominations 
of  their  coins,  and  yet  have  them  form  a  portion  of  a 
universal  currency.  The  advantage  of  retaining  the 
coins  and  denominations  in  use  at  present,  cannot  be 
overestimated,  for  nothing  is  more  difficult  than  to 
change  long-established  usages  or  habits.  Some  por 
tions  of  Germany,  and  possibly  of  Italv,  would  have  to 


MONEY.  69 

change  their  present  coins,  but  in  these  cases  the  change 
would  not  be  very  difficult,  because  the  French  coins  are 
well  known,  and  already  circulate  freely  in  every  portion 
of  those  countries.  In  Russia,  the  change  would  be 
more  radical  and  more  difficult,  but  as  the  present  sys 
tem  of  money  in  Russia  is  quite  complicated  by  different 
issues  of  roubles,  each  having  a  different  value,  besides 
a  legal  paper  currency  constantly  varying  in  value,  the 
change,  if  once  made,  would  undoubtedly  simplify  the 
currency,  and  be  much  for  the  better  in  every  respect 
The  new  system  could  be  made  entirely  decimal,  if  Eng 
land  would  merely  modify  some  of  her  small  coins,  and 
the  present  complicated  calculations  required  to  reduce 
the  currency  of  one  country  into  that  of  any  other, 
would  then  become  quite  simple  and  easy. 

The  proposed  system  will  be  clearly  understood  in 
all  its  details  by  the  following  table,  which  shows  what 
would  be  the  value  of  each  coin  now  in  use,  in  the  cur 
rency  of  all  the  other  countries  : 

Under  the  proposed  system, 

In  the  United  States,  In  France, 

In  England.                                  Spain,  Portugal,  &c.  Belgium,  &c. 

The  sovereign  or  20  shillings,  would  be  equal  to  $5.00  or  frs.  25.00 

16         "             "             "              4.00  "       20.00 

10                        "             "              2.50  "        12.50 

8         "             "             "              2.00  "       10.00 

4  "             "             "              1.00  "          5.00 
2         "             "             "              0.50  "          2.50 
1         "                            "              0.25  "          1.25 

10  pence  "  "  0.20  "  1.00 

5  "  "  "  0.10  "  0.50 
2i     "  "  "  0.05  "  0.25 
1    penny  "  "  0.02  "  0.10 

i    "  "  "  0.01       '<         0.05 


CHAPTEK  VI. 

PAPER     MONEY. 

KICAKDO  said  that  money  in  its  most  perfect  state, 
is  paper  money,  and  he  undoubtedly  is  perfectly  right 
in  this  assertion.  Paper  money  is  preferable  to  any 
other  because  it  is  lighter,  more  easily  handled,  counted, 
and  transported,  than  any  other  money  ever  used,  at 
the  same  time  that  it  offers  the  great  additional  advan 
tage  of  being  the  cheapest  material  out  of  which  an  in 
strument  to  facilitate  the  exchanges  of  commodities 
and  services  can  be  made.  Adam  Smith  said  :  "  The 
substitution  of  paper  in  the  room  of  gold  and  silver 
money,  replaces  a  very  expensive  instrument  of  com 
merce  with  one  much  less  costly  and  sometimes  equally 
convenient.  Circulation  comes  to  be  carried  on  by  a 
new  wheel,  which  it  costs  less  both  to  erect  and  to  main 
tain  than  the  old  one."  *  Another  eminent  writer  on 
money  said  :  "  In  proportion  as  the  instruments  of  com 
merce  or  the  machinery  of  manufactures  are  of  a  less 
expensive  construction,  the  articles  which  they  contri 
bute  to  produce  may  be  afforded  at  a  lower  rate.  To 
employ  paper  money  instead  of  gold,  is  to  substitute  a 

*  Wealth  of  Nations,  vol.  ii,  p.  25  ;  London  edition,  1819. 


MONEY.  71 

very  cheap  instrument  of  commerce  in  the  room  of  an 
expensive  one."  * 

The  great  and  only  difficulty  in  regard  to  paper 
money,  is  the  abuses  and  errors  which  have  attended  its 
use.f  But  is  this  a  valid  reason  for  refusing,  as  many 
desire  and  propose,  to  use  a  great  and  beneficial  instru 
ment  of  human  progress  and  well  being  ?  Is  not  every 
thing  used  by  man,  including  his  own  faculties,  suscep 
tible  of  being  abused  ?  Water,  fire,  food,  education, 
amusements,  all  things  that  contribute  to  the  welfare  of 
humanity  when  properly  used,  also  produce  suffering 
when  improperly  used.  Suffering  is  a  valid  reason  for 
ceasing  the  improper  use  of  anything,  but  not  for  ceas 
ing  its  use  altogether.  The  great  aim  of  man  must  be 
to  discover  the  proper  and  beneficial  use  of  all  things. 
With  paper  money,  as  with  everything  else,  the  great 
point  is  to  ascertain  clearly  what  is  its  proper,  and  what 
its  improper,  use.  To  this  end  it  is  necessary  to  refer  to 
the  experience  of  the  past,  and  to  submit  to  a  close  and 
careful  analysis  all  the  facts  we  can  discover  bearing 
on  the  question — sole  means  of  knowledge  within  man's 
reach  in  this  world.  With  that  view,  we  shall  begin 
by  recalling  briefly  the  results  of  a  few  of  the  experi 
ments  in  regard  to  government  issues  of  paper  money. 

The  French  Government,  on  the  2d  May,  1716, 
during  the  regency  of  the  Duke  of  Orleans,  authorized 

*  Quoted  in  Rees'  Encyclopaedia,  Paper  Currency. 

f  "  If  there  were  perfect  security  that  the  power  of  issuing  paper  money 
would  not  be  abused,  that  is,  if  there  were  perfect  security  for  its  being 
issued  in  such  quantities  as  to  preserve  its  value  relatively  to  the  mass  of 
circulating  commodities  nearly  equal,  the  precious  metals  might  be  entirely 
dispensed  with,  not  only  as  a  circulating  medium,  but  also  as  a  standard  to 
which  to  refer  the  value  of  paper."  (McCulloch,  Money.) 


72  MONEY. 

the  celebrated  Law  to  establish  a  bank  with  a  capital 
of  6,000,000  livres.  Its  notes  were,  by  royal  edict, 
made  receivable  in  payment  of  taxes,  and,  by  a  subse 
quent  edict,  the  tax  receivers  were  even  ordered  to  re 
deem  them  in  specie  on  presentation.  This  at  once 
gave  them  such  currency  that  the  circulation  of  the 
bank  soon  reached  50  millions  of  livres.  The  deposits 
of  gold  and  silver  in  exchange  for  bank  notes  increased 
every  day.  In  less  than  two  years,  Law  completely 
introduced  bank  notes  into  circulation  in  Franc  3,  where 
before  they  had  been  entirely  unknown. 

Law's  object  was,  finally,  to  establish  a  national 
bank  that  should  collect  the  entire  public  revenue,  in 
the  place  of  the  "  Ferrniers  Generaux,"  and  administer 
all  the  commercial  privileges  that  might  be  granted  to 
it  by  the  Government.  The  emission  of  bank  notes  to 
the  extent  of  ten  times  the  capital  of  the  bank  was, 
in  his  eyes,  too  limited  a  result.  He  conceived  the  idea 
of  uniting  all  the  capitalists  of  France,  so  as  to  control 
all  the  elements  of  national  wealth,  from  the  landed 
estates  to  the  colonial  trade.  What  security  could  be 
more  ample  than  the  whole  of  France  ?  But  Law  did 
not  dare  to  present  this  project  in  all  its  majestic  sim 
plicity.  Public  opinion  would  not,  as  yet,  permit  it. 
He  was  forced  to  graft  his  national  bank  on  some  in 
stitution  that  would  accord  with  the  prejudices  of  his 
contemporaries  ;  and,  unfortunately,  the  then  prevailing 
mania  for  colonization  furnished  him  the  opportunity 
to  establish  a  company  to  trade  to  the  Mississippi.  This 
led  to  the  organization  of  the  "  Compagnie  des  Indes 
Occidentals"  (West  India  Company),  in  August, 
1717,  as  an  adjunct  to  Law's  bank,  with  a  capital  of 


MONEY.  73 

one  hundred  millions  of  livres  ;  and,  as  an  inducement 
to  subscribe  to  the  shares,  they  were  authorized  to  be 
paid  for,  one  fourth  in  coin  and  three  fourths  in  "  bil 
lets  d'etat"  (state  notes),  which  were  then  greatly 
depreciated.  The  West  India  Company  received  the 
grant  of  the  sovereignty  and  exclusive  trade  of  Louis 
iana,  and  the  monopoly  of  the  Canada  fur  trade. 

But  the  main  cause  of  the  final  catastrophe  was, 
that  on  the  4th  December,  1718,  two  and  a  half  years 
after  its  creation,  Law's  bank  was  declared  the  Koyal 
Bank  of  France  ;  the  Government  guaranteed  the  notes 
issued  by  Law's  bank,  and  reimbursed  the  old  share 
holders  in  coin  ;  and  for  all  payments  above  six  hundred 
livres.  gold  and  bank  notes  alone  were  declared  a  legal 
tender.  It  thus  ceased  to  be  a  private  enterprise,  man- 
ag3d  and  controlled  by  the  vigilant  motive  of  self- 
interest,  and  became  exclusively  an  engine  of  the  state. 
To  the  West  India  Company  was  further  granted,  on 
the  4th  September,  1718,  the  tobacco  monopoly  ;  on 
the  20th  July,  1719,  the  administration  of  the  mint  ; 
and  in  May,  1719,  all  the  privileges  and  trade  of  the 
several  maritime  companies  (the  China,  the  Senegal, 
and  the  East  India  companies)  were  transferred  to  it, 
and  ifc  assumed  the  name  of  the  "  Compagnie  des 
Indes."  . 

In  consequence  of  these  successive  annexations,  be 
sides  its  issues  of  bank  notes,  the  company  was  forced 
to  issue  sundry  series  of  shares.  The  number  of  shares 
—originally  200,000  of  500  livres  each — was  aug 
mented  in  May,  1719,  by  an  issue  of  50,000  new 
shares,  known  as  "  the  daughters/'  and  by  a  second 
issue  of  50,000  in  July,  1719,  known  as  "the  grand- 
4 


74  MONEY. 

daughters."  A  few  months  later,  after  the  lease  of  the 
"fermes"  (taxes)  had  been  granted  to  the  company, 
and  it  had  promised  to  loan  1,500  millions  of  livres 
to  the  state,  four  other  emissions  were  made,  which 
carried  the  total  number  of  shares  to  624,000.  The 
rage  for  them  was  so  great  that  their  price  rose  from 
par  (500  livres)  up  to  18,000  livres  per  share  !  On  the 
other  hand  the  issues  of  bank  notes,  which,  by  the 
edicts  authorizing  them,  were  to  be  limited  to  1,200 
millions — amount  about  equal  to  the  specie  in  the 
kingdom — were  admitted  by  the  Government  to  have 
been  carried  to  2,700  millions  ;  and,  according  to  gen 
eral  opinion,  the  amount  issued  was  really  3,000  mil 
lions  of  livres  ! 

To  encourage  the  circulation  of  the  bank  notes,  in 
December,  1719,  an  edict  ordered  that,  thereafter,  they 
should  always  be  worth  five  per  cent,  more  than  specie  ! 
that  silver  should  only  be  iised  in  payments  under  100 
livres,  and  gold  in  those  under  300  livres.  To  check 
the  growing  desire  to  purchase  jewelry  and  precious 
stones,  as  means  of  obtaining  something  of  intrinsic 
value  in  exchange  for  the  bank  notes,  in  which  confi 
dence  was  declining,  it  was  forbidden  to  wear  pearls, 
diamonds,  and  other  precious  stones.  The  transporta 
tion  of  specie  was  prohibited  between  towns  in  which 
there  were  branches  of  the  bank.  By  edicts  of  the 
23d  and  25th  February,  1720,  it  was  made  obligatory 
to  use  bank  notes  in  all  payments  over  100  livres.  ISTo 
person  was  permitted  to  hold  more  than  500  livres  in 
specie,  under  penalty  of  confiscation  and  a  fine  of 
10,000  livres  ;  and  informers  were  to  receive  one  half 
of  all  amounts  confiscated.  The  use  of  the  precious 


MONEY.  75 

metals  for  objects  of  art  or  luxury,  was  regulated  and 
limited,  so  as  to  prevent  an  evasion  of  the  limitation  of 
the  amount  of  gold  and  silver  that  might  be  in  the 
possession  of  any  one  person.  Finally,  an  edict  of 
llth  March,  1720,  forbade  any  payment  being  made  in 
specie. 

As  it  was  feared  that  the  fall  in  the  price  of  the 
shares  of  the  India  Company  might  increase  the 
discredit  of  the  bank  notes,  it  was  decreed  on  the  5th 
March  that  the  price  of  the  shares  should  be  thereafter 
9,000  livres,  and  an  office  was  opened  in  the  bank, 
where  the  shares  could  be  exchanged  for  bank  notes,  or 
bank  notes  converted  into  shares,  at  that  price.  This 
decree,  instead  of  benefiting  the  bank  notes,  caused  a 
rapid  depreciation  of  their  market  value.  In  February 
they  were  worth  ninety  per  cent.,  but  after  the  5th 
March  only  sixty  to  fifty. 

On  the  21st  May;  1720,  an  edict  reduced  the  value 
of  the  shares  to  8,000  livres  ;  and  ordered  that  on  the  1st 
July  it  should  be  further  reduced  to  7,500  livres,  and 
should  thereafter  be  reduced  monthly  500  francs,  until 
the  1st  December,  when  their  value  would  become  5,000 
francs,  which  thereafter  was  to  be  their  permanent 
value.  The  bank  notes  were  only  to  pass  current  at 
eighty  per  cent,  of  their  par  value  until  the  1st  of  July, 
when  they  were  to  be  reduced  to  seventy-five  per  cent., 
and  thereafter  further  reduced  5  per  cent,  every  month, 
until  the  1st  December,  when  they  were  to  be  current  at 
fifty  per  cent.,  which  was  thereafter  to  be  their  perma 
nent  value.  From  that  moment  the  whole  paper  fabric 
fell  to  the  ground  ;  the  notes  lost  all  credit,  none  would 
meddle  with  them  ;  on  the  22d  May  any  one  might  have 


76  MONEY. 

starved  with  a  hundred  millions  of  paper  money  in 
his  pocket.  The  edict  created  such  excitement  among 
all  classes  that  the  Kegent  revoked  the  edict  on  the 
27th  May.  But  all  confidence  being  now  gone,  this 
revocation  had  no  other  effect  than  to  increase  the  mis 
chief,  hy  throwing  again  into  the  channels  of  commerce 
notes  universally  discredited,  with  which  knavish  per 
sons  paid  and  ruined  their  lawful  creditors.  To  render 
matters  worse,  payments  were  the  same  day  stopped 
at  the  hank,  commissioners  being  sent  to  seal  up  the 
vaults  and  examine  the  books,  under  the  pretext  of  in 
quiring  into  frauds  alleged  to  have  been  committed  by 
the  clerks,  but  in  reality  to  prevent  the  specie  from 
being  paid  away  in  exchange  for  notes. 

When  the  bank  thus  stopped  payment,  the  circula 
tion  was  2,235,085.590  livres,  and  the  specie  in  its 
vaults  336,011,050  livres.  On  the  10th  June  the  bank 
was  opened  for  the  payment  of  notes  of  ten  livres.  On 
the  llth  it  was  announced  that  the  notes  of  100  livres 
would  be  changed  into  small  notes,  but  only  one  for 
each  person,  and  the  12th  and  13th  were  appointed  for 
the  payment  of  the  notes  of  ten  livres.  This  drew  to 
gether  an  immense  number  of  persons,  who  were  with 
difficulty  controlled  by  the  troops.  The  17th  July  was 
appointed  for  the  payment  of  the  notes  of  100  livres, 
on  which  day  so  extraordinary  a  concourse  of  people 
assombled,  and  the  struggles  to  reach  the  bank  were 
such,  that  it  is  said  no  less  than  twenty  persons  were 
suffocated.  On  the  30 ih  July  an  edict  doubled  the 
legal  value  of  gold  and  silver,  which,  however,  was  to 
be  gradually  reduced  again,  month  by  month,  to  their 
former  legal  values,  the  object  being,  by  the  temptation 


MONEY.  77 

of  a  temporary  high  value,  to  induce  the  holders  of 
coin  to  put  it  into  circulation,  but  the  edict  failed  in 
attaining  this  object. 

In  June,  1720,  twenty-five  millions  of  livres  of  per 
petual  annuities,  bearing  interest  at  two  and  a  half  per 
cent,  per  annum,  and  four  millions  of  annuities  on  lives, 
bearing  interest  at  four  per  cent,  per  annum,  were  cre 
ated  to  redeem  the  bank  notes.  In  July  six  hundred 
millions  of  rentes,  and  in  August  eight  millions  more  of 
perpetual  annuities,  bearing  interest  at  two  and  a  half 
per  cent,  per  annum,  were  created  for  the  same  pur 
pose.  The  terms  offered  were  considered  very  onerous, 
and  the  people  did  not  subscribe  to  them  as  rapidly  as 
desired.  An  edict  was  therefore  issued  on  the  15th 
August,  declaring  that  the  notes  of  10,000  and  of 
1,000  livres  should  no  longer  circulate,  except  in  pay 
ment  of  the  annuities  and  rentes  ;  and,  by  a  subse 
quent  edict,  all  payments  in  notes  were  prohibited  after 
the  1st  November,  1720.  The  consequence  was  that, 
many  persons  having  neglected  the  opportunities  of 
funding  their  bank  notes  within  the  limited  time,  large 
amounts  proved  a  total  loss. 

With  regard  to  the  shares,  by  an  edict  of  3d  of  June, 
1720,  100,000  belonging  to  the  king,  and  300,000  in 
the  hands  of  the  company  were  cancelled  ;  200,000  new 
shares  were  created  and  issued  in  exchange  for  old  shares, 
share  for  share,  against  a  payment  of  3,000  livres  on 
each  share,  or  two  new  shares  for  three  old  shares  ; 
the  dividend  on  the  new  shares  was  fixed  at  360  francs. 
Soon  afterward  50,000  additional  new  shares  were 
issued  on  the  same  conditions.  The  farm  of  the  taxes, 
the  mint,  and  the  royal  revenues  were  taken  from  the 


78  MONEY. 

company,  which  thus  became  a  mere  trading  company. 
On  the  24th  of  October,  an  edict  directed  a  list  to  be 
made  out  of  all  the  original  proprietors  of  shares.  Those 
who  possessed  the  full  number  subscribed  for,  were 
ordered  to  deposit  them  with  the  company — those  who 
had  either  sold  the  whole  or  part,  were  to  recomplete 
their  original  number  by  purchasing  from  the  company 
the  deficient  shares  at  13,500  livres  per  share.  As 
many  persons  upon  this  attempted  to  leave  the  country 
with  their  property,  on  the  29th  of  October,  all  persons 
were  prohibited,  under  pain  of  death,  from  quitting  the 
kingdom  without  express  permission  of  the  regent. 

These  operations  concluded,  it  was  found  that  the 
total  amount  of  the  public  debt  on  the  1st  of  January, 
1721,  was  2,289,762,849  livres,  besides  125,024  shares 
of  the  India  Company,  valued  at  899,638,855  livres, 
making  a  total  of  3,189,401,705  livres,  the  annual  in 
terest  on  which  was  99,588,375  livres. 

The  ministry,  finding  it  impossible  for  the  nation  to 
sustain,  for  any  length  of  time,  so  heavy  a  charge,  issued 
an  edict,  dated  26th  of  January,  1721 ,  appointing  a  com 
missioner  to  take  an  account  of  the  claims  of  the  state 
creditors,  which  were  to  be  divided  into  five  classes  ; 
the  first  four  classes  were  to  be  composed  of  those  who 
had  acquired  their  claims  by  money  paid  to  the  king 
when  he  discharged  the  old  debt  of  the  state,  by  the 
sale  of  heritable  and  movable  property,  and  by  the 
disposal  of  merchandise  or  other  effects,  while  the  fifth 
and  last  class  were  to  comprehend  all  who  could  give  no 
fair  or  satisfactory  account  of  the  origin  of  their  claims. 
Deductions  at  different  rates,  proportioned  to  the  favor 
able  or  unfavorable  circumstances  attending  the  claims, 


MONEY.  79 

were  ordered  to  be  made  from  the  first  four  classes,  except 
claims  of  or  under  500  livres,  which  were  to  be  paid  in 
full.  Those  of  the  fifth  class  were  ordered  to  be  total 
ly  cancelled. 

The  claims  deposited  under  this  decree  represented 
2,222,597,491  livres,  which  were  reduced  by  the  com 
missioner  to  1,676,501,831  livres.  The  shares  were  re 
duced  from  125 ,024  to  56,000,  and  the  dividends  on  them 
were  reduced  from  360  to  100  livres  per  share  for  the 
first  ensuing  year,  and  150  livres  thereafter,  exclusive 
of  their  proportion  of  the  profits  of  the  trade  of  the  com 
pany.  The  expenses  of  the  commission  were  9,045,- 
875  livres.  The  notes  at  the  time  of  the  suspen 
sion  of  the  bank  had  fallen  to  80  per  cent,  discount, 
and  on  the  12th  of  February,  1721,  they  were  only 
worth  4  per  cent.  Thus  ended  the  bank  and  the  Com- 
paigne  des  Indes.* 

Our  second  illustration  of  government  paper  issues 
is  also  taken  from  the  history  of  France. 

Tlje  'National  Assembly  of  France  decreed,  on  the 
1st  of  April,  1790,  the  emission  of  assignats,  based  on 
and  in  anticipation  of  the  sale  of  the  confiscated  landed 
estates  of  the  emigrant  nobles  and  clergy,  in  payment 
of  which  they  were  to  be  received. 

The  first  issue  was  of  400  millions  of  francs,  but 
others  followed  rapidly,  and  they  soon  began  to  depreciate 
in  value.  The  Government  resorted  to  the  most  violent 
and  despotic  measures  to  sustain  the  value  of  the  assig 
nats,  such  as  prohibiting  the  use  of  metallic  coin  ;  estab 
lishing  maximum  prices  for  commodities  ;  inflicting 
severe  penalties  on  all  who  paid  or  received  them  at  less 

*  Thier's  Life  of  Law.     Wood's  Life  of  Law,  Edinburgh,  1824. 


80  MONEY. 

than  their  par  value  ;  and  in  1796  even  death  was  de 
creed  against  all  who  should  refuse  to  receive  assignats 
at  par.  But  all  in  vain.  These  measures  were  power 
less  to  arrest  the  depreciation.  There  was  a  temporary 
reaction  in  1793,  when,  by  means  of  a  forced  loan,  840 
millions  were  redeemed,  cancelled,  and  burnt ;  but  in 
1795  the  Government  made  another  forced  loan,  in 
payment  of  which  the  assignats  were  only  received  at 
one  per  cent,  of  their  nominal  value  !  How  could  they 
continue  to  circulate  as  money,  when  the  very  Govern 
ment  that  had  issued  them  refused  them  in  payment  of 
loans  and  taxes  ?  Further  large  issues  were  however 
made  ;  they  soon  fell  to  one  half  of  one  per  cent.,  and 
finally,  in  the  beginning  of  1796,  to  zero.  Toward  the 
end,  8,000  to  10,000  francs  were  paid  for  a  pair  of  boots  ; 
600  to  700  francs  for  a  pound  of  butter,  and  20  to  30 
francs  for  a  stick  of  barley  sugar  ! 

In  1796  the  assignats  were  withdrawn  and  redeemed 
at  3\th  of  their  nominal  value,  with  "  mandate,"  which 
entitled  the  holder  to  take  possession  of  public  lands  at 
their  estimated  value,  whilst  the  assignats  could  only  be 
offered  in  payment  at  a  sale  of  public  lands.  The  man- 
dats  never  obtained  circulation  as  money,  but  fell  at 
once  into  the  hands  of  speculators.  When  first  issued, 
they  soon  were  only  worth  TV th  of  their  nominal  value, 
and  in  the  course  of  1796  they  were  returned  to  the 
Government  in  payment  of  taxes  and  lands.  In  July, 
1796,  the  whole  system  of  paper  money  came  to  an  end 
by  the  enactment  of  a  law  permitting  business  to  be 
transacted  in  any  circulating  medium,  and  making 
mandats  receivable  in  payment  of  taxes  only  at  their 
current  value  in  trade.  Mr.  G.  de  Puynode,  in  his  able 


MONEY. 


81 


and  interesting  work,  "  De  la  Monnaie,  du  credit  et  de 
ttmpot,"  says,  "  such  are  the  terrible  perturbations  pro 
duced  in  communities  by  a  forced  circulation  of  paper 
money.  An  inevitable  fatality  urges  the  Governments 
that  use  it,  toward  its  abuse  ;  for  a  forced  circulation  of 
paper  money  is  always  resorted  to  in  moments  of  crisis, 
when  the  ordinary  resources  are  insufficient.  A  first 
excess  in  the  issue  of  paper  money,  rendered  necessary 
by  excessive  expenditures,  produces  a  depreciation  in  the 
value  of  the  money  received  in  payment  of  the 
taxes  levied,  and  this  depreciation  obliges  the  Govern 
ment  to  make  further  issues  to  augment  its  resources, 
BO  as  to  compensate  the  depreciation  in  the  value  of  the 
taxes  ;  and  so  on,  ad  infinitum,  until  the  value  of  the 
paper  falls  to  zero,  which  is  equivalent  to  general,  or 
rather  national  bankruptcy." 

Progress  of  the  emission  of  assignats,  and  of  their 
depreciation. 

The  amount  of  the  first  emission  of 

1st  April,  1790.  was,        .        .      400  million  frs. 
They  had  reached,  by  the  end  of  Discount. 

1790, 1,200  10  per  cent. 

The  amount  in  Sept.,  1792,  was,  2,700  37 

•   "  Sept.,  1793,  was,  5,000  '    ,      55 

After  this,  a  forced  loan  was  decreed,  that  redeemed 
840  millions,  which  were  burned  ;  but  by  the  beginning 
of  1794,  new  issues  had  raised  the  amount  to  over  57000 
millions. 

Discount. 

The  amount  in  June,  1794,  was,  6,636  million  frs. 

"  March,  1795,  was,  8,000  78  per  cent. 

"  Oct.,  1795,  was,  19,000 

4* 


82  MONEY. 

About  this  time,  to  obtain  silver,  3,000  millions 
were  issued,  which  produced  but  little  over  100  millions 
in  coin. 

The  amount  at  the  end  of  1795  Discount. 

was, 20.000  million  frs.,  99  per  cent. 

And  in  Feb.,  1796,       ...    45,578          " 

when  they  were  entirely  abandoned,  and  became  utterly 
worthless. 

The  first  issue  of  paper  money  in  Russia  was  at 
the  close  of  1768,  in  the  reign  of  Catherine  II,  when 
the  Bank  of  Assignats  was  founded.  The  whole  issue 
was  limited  to  400  millions  of  roubles.  They  were 
at  first  redeemed  indifferently  in  silver  or  copper  coin, 
but  soon  they  were  only  redeemed  in  copper,  which 
was  overvalued  by  50  per  cent.  From  1769  to  1787 
the  amount  in  circulation  remained  uniform  at  about 
40  millions,  and  the  agio  in  favor  of  silver  varied  from 
one  to  three  per  cent,  in  that  interval,  while  there  was 
an  agio  of  from  one  to  five  per  cent,  in  favor  of  the 
paper  against  copper.  In  1774  they  rose  fully  to  par 
compared  with  silver.  In  1787  a  sudden  addition 
was  made  of  60  millions,  accompanied  with  a  promise 
that  no  further  quantity  should  be  issued  ;  but  a 
succession  of  wars  with  Turkey,  Sweden,  Poland,  and 
Persia,  and  finally  with  France,  caused  the  transgres 
sion  of  the  promise,  and  further  progressive  issues  were 
made  till  1810,  when  they  amounted,  in  the  whole,  to 
577  millions  ;  and  in  1817,  to  836  millions.  An  in 
creasing  agio  on  silver  was  the  consequence,  till  in 
October,  1816,  the  silver  rouble  was  worth  four  in  paper. 
During  the  progress  of  this  depreciation  of  the  paper, 


MONEY.  83 

the  customhouse  duties,  which  were  payable  in  silver 
money,  could  be  paid  in  paper  at  an  agio  settled  peri 
odically  upon  a  reference  to  the  market  rates.  In  Oc 
tober,  1816,  the  bank  notes  were  declared  by  the  Gov 
ernment  to  be  receivable  in  payment  of  duties  in  the 
proportion  of  4  to  1,  thus  officially  acknowledging  a 
depreciation  of  75  per  cent.  On  Jan.  1,  1821,  the 
issues  had  been  reduced  to  640  millions,  and  the  ex 
changes  had  improved  so  as  to  induce  the  Government 
to  accept  the  paper  rouble  in  payment  of  taxes  at  3.60 
for  1,  and  eventually  at  3.50  for  1,  at  which  last  rate 
the  conversion  of  bank  assignats  into  bank  notes  pay 
able  on  demand  in  silver  roubles,  was  ordained  by  an 
imperial  ukase,  dated  July  1,  1839.'* 

Our  last  illustration  of  government  paper  issues  is 
that  which  occurred  in  the  United  States. 

The  old  States,  when  colonies,  to  meet  Indian  and 
colonial  war  expenditures,  issued  paper  money  as  far 
back  as  1690,  often  at  a  considerable  depreciation  from 
their  nominal  value.  Massachusetts  alone  issued  from 
two  to  three  millions  of  pounds  lawful  currency.  In  1748 
these  issues  of  paper  money  were  worth  as  follows.: 

In  New  England,  £1100  lawful  were  worth  £100  sterling.! 

In  New  York,          190  ' 

In  East  Jersey,         190  '  "  " 

In  West  Jersey,        180  '  "  "            " 

In  Pennsylvania,      180  '  "  " 

In  Maryland,  200  ' 

In  Virginia,  120  to  125  "  " 

In  North  Carolina,  1000  "  "  "             " 

In  South  Carolina,    TOO  "  "  "            « 

*  Tooke,  History  of  Prices,  vol.  ii,  p.  G8 — vol.  iii,  pp.  210,  215. 
f  The  Funding  System  of  the  United  States  and  Great  Britain,  by 
Jonathan  Elliott,  pp.  15,  16. 


84  MONEY. 

In  the  year  1749 ,  the  colony  of  Massachusetts  had 
issued  ahout  £2.200,000  in  bills  of  credit,  as  the  gov 
ernment  paper  money  was  then  called.  The  colony  then 
obtained  from  Parliament  a  grant  of  £180, COO  sterling 
in  reimbursement  of  the  expenses  incurred  by  the  cjlony 
in  taking  and  securing  Cape  Breton  from  the  French. 
The  House  of  Representatives  of  Massachusetts  passed 
an  act  in  that  year  for  establishing  a  stable  currency 
of  gold  and  silver.  The  act  provided  that  the  bills  of 
credit  outstanding  should  b  >  redeemed  at  eleven  for  one 
with  the  sum  granted  by  Parliament,  which  was  to  be 
shipped  from  England  in  Spanish  milled  dollars*  This 
would  leave  about  £220.000  in  bills  of  credit  outstand 
ing,  which  were  to  be  redeemed  at  the  same  rate  by  a 
tax  on  the  year  1749.  The  act,  after  many  weeks  spent 
in  debate,  was  rejected,  but  subsequently  reconsidered, 
passed  by  the  House  and  Council,  and  approved  by  the 
Governor.  The  measure  proved  perfectly  successfuL 
The  apprehensions  of  a  shock  to  trade  proved  ground 
less  I  the  bills  being  dispersed  through  every  part  of 
the  province,  the  silver  took  their  place,  a  good  currency 
was  insensibly  substituted  in  the  room  of  a  bad  one, 
and  every  branch  of  business  was  carried  on  to  greater 
advantage  than  ever.* 

The  following  account  of  the  issues  of  continental 
paper  money  during  the  war  of  Independence  is  taken 
from  the  writings  of  Thomas  Jefferson,  by  H.  A.  Wash 
ington,  vol.  ix,  pp.  248-259. 

"  On  the  commencement  of  the  late  Revolution,  Congress  had 
no  money.  The  external  commerce  of  the  States  being  suppressed^ 
the  tarniji*  could  not  sell  his  produce,  and,  of  course,  could  not  pay 

*  Gouge  on  Banking,  p.  10. 


MONEY.  85 

a  tax.  Congress  had  no  resource  then  but  in  paper  money.  Not 
being  able  to  lay  a  tax  for  its  redemption,  they  coi.ld  only  promise 
that  tuxes  should  be  laid  fortha;.  purpose,  so  as  to  redeem  tne  bills 
by  a  certain  day.  They  did  not  foresee  t.ie  long  continuance  of 
tie  war,  the  almost  total  suppression  of  their  exports,  and  other 
events,  which  rendered  the  performance  of  their  engagement  im 
possible.  The  paper  money  continued  for  a  twelvemonth  equal 
to  gold  and  silver.  But  the  quantities  which  they  were  obliged  to 
emit  for  the  purpose  of  the  war,  exceeded  what  had  been  the  usual 
quantity  of  the  circulating  medium.  It  began,  therefore,  to  be 
come  cheaper,  or,  as  we  expressed  it,  it  depreciated,  as  gold  and 
silver  would  have  done,  had  they  been  thrown  into  circulation  in 
equal  quantities.  But  not  having,  like  them,  an  intrinsic  value, 
its  depreciation  was  more  rapid  and  greater  than  could  ever  have 
happened  with  them.  In  two  years,  it  had  fallen  to  two  dollars  of 
paper  money  for  one  of  silver ;  in  three  years,  to  four  for  one ;  in 
nine  months  more,  it  fell  to  ten  for  one ;  and  in  the  six  months  fol 
lowing,  that  is  to  say,  by  September,  1779,  it  had  fallen  to  twenty 
for  one. 

u  Congress,  alarmed  at  the  consequences  which  were  to  be  appre 
hended  should  they  lose  this  resource  altogether,  thought  it 
necessary  to  make  a  vigorous  eifort  to  stop  its  further  deprecia 
tion.  They  therefore  determined,  in  the  first  place,  that  their 
emissions  should  not  exceed  two  hundred  millions  of  dollars,  to 
which  term  they  were  then  nearly  arrived ;  and  though  they 
knew  that  twenty  dollars  of  what  they  were  then  issuing  would 
buy  no  more  for  their  army  than  one  silver  dollar  would  buy,  yet 
they  thought  it  Would  be  worth  while  to  submit  to  the  sacrifice  of 
nineteen  out  of  twenty  dollars,  if  they  could  thereby  stop  further 
depreciation.  They,  therefore,  published  an  address  to  their  con 
stituents,  in  which  they  renewed  their  original  declarations  that 
this  paper  money  should  be  redeemed  at  dollar  for  dollar.  They 
proved  the  ability  of  the  States  to  do  this,  and  that  their  liberty 
would  be  cheaply  bought  at  that  price.  The  declaration  was  in- 
effect'ial.  No  man  received  the  money  at  a  better  rate;  on  the 
contrary,  in  six  months  more,  that  is,  by  March,  1780,  it  had  fallen 
to  forty  for  one.  Congress  then  tried  an  experiment  of  a  differ- 
ent  kind.  Considering  their  former  offers  to  redeem  this  money 
at  par  as  relinquished  by  the  general  refusal  to  take  it,  but  in  pro- 


86  MONEY. 

gressive  depreciation,  they  required  the  whole  to  be  brought  in, 
declared  it  should  be  redeemed  at  its  present  value  of  forty  for 
one,  and  that  they  would  give  to  the  holders  new  bills  reduced  in 
their  denomination  to  the  sum  of  gold  or  silver  which  was  ac 
tually  to  be  paid  for  them.  This  would  reduce  the  nominal  sum  of 
the  mass  in  circulation  to  the  present  worth  of  that  mass,  which 
was  five  millions  ;  a  sum  not  too  great  for  the  circulation  of  the 
States,  and  which,  they  therefore  hoped,  would  not  depreciate 
further,  as  they  continued  firm  in  their  purpose  of  emitting  no 
more.  This  effort  was  as  unavailing  as  the  former.  Very  little  of 
the  money  was  brought  in.  It  continued  to  circulate  and  to  de 
preciate  till  the  end  of  1780,  when  it  had  fallen  to  seventy-five 
for  one,  and  the  money  circulated  from  the  French  army  being 
by  that  time  sensible  in  all  the  States  north  of  the  Potomac,  the 
paper  ceased  its  circulation  altogether  in  those  States.  In  Virginia 
and  North  Carolina  it  continued  a  year  longer,  within  which 
time  it  fell  to  one  thousand  for  one,  and  then  expired,  as  it  had 
done  in  the  other  States,  without  a  single  groan.  Not  a  murmur 
was  heard  on  this  occasion,  among  the  people ;  on  the  contrary, 
universal  congratulations  took  place  on  their  seeing  this  gigantic 
mass,  whose  dissolution  had  threatened  convulsions  which  should 
shake  their  infant  confederacy  to  its  centre,  quietly  interred  in  its 
grave." 

When  the  continental  money  was  first  issued,  an 
expression  of  doubt  as  to  its  value  involved  suspicion 
of  disaffection  to  the  cause  of  the  country.  As  the 
issues  increased  the  price  of  goods  necessarily  rose  ;  but 
this  was  attributed  to  combinations  of  the  merchants 
to  raise  the  price  of  their  merchandise,  and  to  sink  the 
value  of  continental  money.  They  were  called  tories, 
speculators,  and  many  other  hard  names  ;  their  stores 
were  forcibly  broken  open,  and  their  goods  sold  at  lim 
ited  prices  by  committees  of  their  neighbors. 

Congress,  as  early  as  January  llth,  1776,  resolved 
that  "whoever  should  refuse  to  receive  in  payment  con 
tinental  bills,  should  be  declared  and  treated  as  an 


MONEY.  87 

enemy  of  his  country,  and  be  precluded  from  intercourse 
with  its  inhabitants/'  i.  e.  should  be  outlawed. 

''  This  ruinous  principle  was  continued  in  practice 
for  five  successive  years,  and    appeared  in  all  shapes 
and  forms,  i.  e.  in  tender  acts;  in  limitations  of  prices: 
in  awful  and  threatening  declarations  ;  in  penal  laws, 
with  dreadful  and  ruinous  punishments  ;  and  in  every 
other  way  that  could  be  devised  ;  and  all  executed  with 
a  relentless   severity  by  the  highest  authorities  then  in 
being,  viz.,  by  Congress,  by  assemblies  and  conventions 
of  the  States,  and  by  committees  of  inspection  (whose 
powers  in  those  days  were  nearly  sovereign),  and  even 
by  military  force  ;   and   though  men  of  all  descriptions 
stood  trembling  before   this   monster  of  force,  without 
daring  to  lift  a  hand  against  it  during  all  this  period, 
yet  its  unrestrained  energy  always  proved  ineffectual  to 
its  purposes,  but  in  every  case  increased  the  evils  it  was 
designed  to  remedy,  and  destroyed  the  benefits  it  was 
intended  to  promote.     Many  thousand  families  of  full 
and  easy  fortune  were  ruined  by  these  fatal  measures, 
without  the    least  benefit  to    the  country,  or  to  the 
great  and  noble    cause    in  which   we   were  then  en 
gaged."  * 

The  issues  began  10th  May,  1775,  and  ended  in  1781. 
The  depreciation  began  in  about  three  years  after  the 
first  issues. 

On  March    1,  1778,  $1  in  coin  was  given  for  $1.75  in  paper  money 

On  Sept.      1,  1778,  «  «  «  4>00 

On  March    1,  1779,  "  "  «  jo.OO  " 

On  Sept.      1,  1779,  '<  «  «  18<00  u 

On  March  18,  1780,  "  "  «          40.00  " 

*  Pelatiah  Webster,  a  merchant  of  Philadelphia,  who  published  a  series 


88 


MONEY 


A  resolution  was  then  passed  by  the  old  Congress,  to 
fund  them  at  $40  for  $l>and  interest  to  be  paid  on  the 
new  certificates.  But  the  depreciation  still  went  on.* 

On  Dec.  1,  1780,  $1,  in  coin  was  given  for  $100  in  paper  money. 
On  May  1,1781,    "  "  "  200  to  500     " 

They  did  not  circulate  as  a  currency  after  this  ;  but 
they  passed  at  times  at  $1  for  $1000  or  more.  The 
certificates  bearing  interest,  issued  for  the  paper  money 
funded  at  $40  for  $1,  also  rapidly  depreciated,  $8 
being  sold  for  $1  in  coin,  before  1791. 

In  1791  a  law  was  passed  which  permitted  the  con 
tinental  paper  money  still  outstanding  to  be  funded  at 
$100  for  $1.  The  amount  still  outstanding  in  1791 
was  estimated  at  from  78  to  80  millions  of  dollars. 


Alexander  Hamilton  in  1790  esti 
mated  the  entire  issues  at.  ...       $2,070,485 

George  on  Banking,  estimates  the 

entire  issue  at 2,070,240 

Merchants'  Magazine  for  January, 

1843 2,071,085 

Amount  as  reported  by  the  Treasu 
ry  Department  to  the  Senate, 
February  25, 1843 


New  Emissions.         Old  Emissions. 

$357,476,541 
337,470,541 
387,476,337 


242,100,176 


of  pamphlets  on  the  subject,  from  1776  to  1780,  collected  into  a  volume 
with  notes  in  1790.     (Quoted  by  Gouge  on  Banking,  pp.  11,  12.) 

*  "  In  the  later  stages  of  a  depreciation,  the  rate  at  which  it  progresses 
is  much  more  rapid  than  at  the  earlier  stages.  Naturally  and  inevitably 
this  is  so.  Excessive  quantity  is  one  cause  of  depreciation,  and  growing 
distrust  another.  As  soon  as  the  latter  is  added  to  the  former,  the  degra 
dation  is  intensified ;  no  one  likes  to  hold  that  which  is  depreciating 
obviously  and  rapidly  ;  every  one  passes  it  forward,  and  thus  the  downward 
motion  is  inevitably  and  constantly  accelerated."  (London  Economist,  22d 
November,  1862.) 


MONEY.  89 

We  find  it  impossible  to  decide  which  of  these 
statements  is  correct. 

Nearly  all  the  government  paper  issues  ever  made 
have  shared  the  same  fate  as  those  whose  history  we 
have  sketched.  The  phases  through  which  they  all 
pass  is  remarkably  similar.  The  issue  of  paper  money 
is  generally  resorted  to  by  governments,  in  moments  of 
financial  embarassments,  as  a  resource  to  meet  indis 
pensable  expenditures.  This  is  contrary  to  the  first 
principle  of  money,  which  is,  that  being  an  instrument 
made  by  the  government  at  the  expense  and  for  the 
convenience  and  advantage  of  the  individuals  ivho  use 
it,  it  should  only  be  manufactured  when  demanded  by 
the  individuals.  The  principle  which  controls  the  issue 
of  government  paper  money  being  false,  like  all  other 
recourse  to  false  principles,  the  issue  cannot  fail  to  be 
injurious  to  both  government  and  people.  No  matter 
how  despotic  or  popular  the  government  issuing  the 
paper  money  may  be,  the  public  soon  lose  confidence  in 
it  :  if  forced  by  legal  enactments  to  accept  it,  they 
avoid  holding  it,  and  hoard  the  coin,  in  which  they 
have  confidence,  and  which,  therefore,  suddenly  disap 
pears  from  circulation.  The  anxiety  to  exchange  paper 
money,  in  which  the  community  has  no  confidence,  for 
commodities  and  other  property  which  have  an  intrinsic 
value,  soon  produces  a  rapid  rise  of  prices,  which  is  the 
true  indication  and  measure  of  the  depreciation  of  all 
paper  money  having  a  forced  circulation.  Every  rise  in 
prices,  being  in  reality  a  fall  in  the  value  of  the  paper 
money,  instead  of  inducing  holders  of  commodities  and 
property  to  realizs,  only  increases  their  desire  to  retain 
them,  whilst  it  increases  the  desire  of  the  holders  of 


90  MONEY. 

paper  money  to  exchange  it  for  anything  possessing 
intrinsic  value.  The  inevitable  result  is  a  panic  in  re 
gard  to  the  paper  money,  and  the  very  government  that 
issued  it  is  soon  forced  to  refuse  it  in  payment  of  taxes 
and  loans,  as  it  will  no  longer  procure  the  supplies 
needed  by  the  goverment  and  by  its  officers  and  em 
ployees. 


CHAPTER  VII. 

THE  results  of  individual  and  corporate  issues  of 
paper  money  are  in  striking  contrast  with  those  of  <W- 
ernment. 

^Take  for  example  the  Scotch  banks.  These  insti 
tutions  have  rendered  incalculable  services  to  the  com 
merce  and  industry  of  Scotland.  They  have  long  been 
numerous  in  the  midst  of  a  small  population,  and  are 
enterprising  and  active  in  a  country  of  limited  extent, 
with  few  manufacturing  centres.  The  Scotch  banks 
knew  no  law  but  liberty  and  self-interest.  Until  1845 
they  were  the  freest  banks  that  ever  existed.  Legisla 
tion  limited  neither  their  number,  nor  the  number  of 
their  shareholders,  nor  their  capital,  nor  the  amount  or 
nature  of  their  issues,  nor  any  other  of  their  operations 
From  1800  to  1814,  owing  to  the  scarcity  of  coin  they 
issued  notes  as  low  as  3  shillings.  In  1826  out  of  a 
circulation  of  £3,309,052,  £2,079,344  were  under  £5 
In  1836  the  circulation  was  £3,800,000,  of  which  two 
thirds  were  under  £5. 

There  were  in  Scotland  in  1825,  34  banks  having  133  branches 
1850,18  «  .382         «. 

1859,  «  583         « 


92  MONEY. 

All  the  shareholders  are  personally  responsible  for  the 
debts  of  each  bank,  except  those  of  the  three  incorpo 
rated  banks,  the  Bank  of  Scotland,  the  Royal  Bank  of 
Scotland,  and  the  British  Linen  Company,  whose  stock 
holders,  by  the  acts  of  incorporation,  are  exempted  from 
personal  liability.  There  can  be  no  doubt  but  that  this 
personal  liability  tends  to  maintain  a  vigilant  watch  on 
the  management  of  these  institutions,  besides  which  it 
offers  a  perfect  and  ample  guarantee  to  the  holders  of 
the  bank  notes. 

In  1841,  the  treasurer  of  the  Bank  of  Scotland 
testified  before  a  committee  of  the  House  of  Commons, 
"  that  7  millions  in  notes  are  found  to  be  requisite  to 
keep  up  an  average  circulation  of  3  millions.  It  ap 
pears  that  the  whole  amount  is  out  in  circulation  for  a 
few  days  only  at  two  seasons  of  the  year."  *  Every  note 
issued  returned  to  the  bank  that  issued  it,  within  10 
or  11  days.  This  rapid  return  of  the  bank  notes  is 
fully  explained  by  the  conditions  of  a  large  portion  of 
the  advances  made  to  the  dealers,  called  cash  credits. 
The  dealer,  to  obtain  one  of  these  credits,  must  furnish 
two  or  more  securities,  who  are  jointly  bound  for  the  re 
payment  of  the  advances  of  the  bank.  A  credit  is  then 
opened,  and  the  dealer  may  draw  for  the  whole  or  part 
at  any  time  ;  he  may  pay  in,  any  day,  whatever  funds 
he  receives,  and  only  pays  interest  on  the  daily  balance 
due  by  him  to  the  bank.f  It  becomes  thus  the  interest 
of  the  persons  obtaining  loans  to  pay  in  daily,  on  account, 
every  trifling  amount  they  may  receive.  How  can  over 
issues  take  place  under  such  a  system  ?  How  can  and 

*  Tooke,  History  of  Prices,  vol.  iii,  p.  237. 
f  Encyclopaedia  Britannica,  Money. 


MONEY.  93 

system  be  more  beneficial  to  the  dealers  and  to  the 
community  ?  How  can  any  system  economize  currency 
to  a  greater  extent  ?  * 

Although  the  circulation  of  the  Scotch  banks  was 
not  limited  by  law,  it  remained  quite  limited  in  extent, 
being  regulated  solely  by  the  wants  of  the  public.  Coin 
is  almost  out  of  circulation  in  Scotland,  being  used  only 
for  change.  McCulloch,  in.  1838,  estimated  the  coin  in 
circulation  in  Scotland  at  only  £500,000.  And  yet  the 
entire  circulation  of  notes  "in  Scotland  does  not  exceed 
£3,500;000,  whilst  in  England  it  has  varied  from  30  to 
45  millions,  being  from  twice  to  three  times  as  great, 
in  proportion  to  population,  as  in  Scotland,  f  One  of 

"  Every  bank,  then,  acts  as  a  centre  of  attraction  to  draw  out  of  circula 
tion  every  £1  note  which  is  not  absolutely  requisite  to  pay  current  expenses. 
Every  Scotchman  feels  that  he  is  losing  money  upon  every  note  that  he 
keeps  idle  in  his  pocket  or  in  his  house ;  every  tradesman  loses  money  for 
any  sum  he  keeps  idle  in  his  till ;  the  consequence  of  which  is,  that  every 
one  deposits  with  his  banker  all  the  cash  he  can  spare,  before  the  close  of 
business  hours,  and  so  a  large  amount  is  withdrawn  from  visible  circulation, 
which  would  go  to  swell  the  apparent  amount  of  currency  if  it  were  not  for 
this  attractive  power  of  the  bank."  (Macleod,  Theory  and  Practice  of 
Banking,  vol.  i,  p.  410.) 

"  It  is  a  remarkable  circumstance  that,  while  there  has  been  a  great  exten 
sion  of  banking  capital,  and  of  banking  accommodation,  and  of  banking  com 
petition  in  Scotland  since  1826,  the  amount  of  the  aggregate  circulation  has 
considerably  diminished.  What  a  commentary  upon  the  received  doctrine 
of  the  power  of  banks  to  increase  their  issues  of  paper  money  as  suits  their 
interest  or  convenience  ;  and  that  it  is  an  effect  of  the  competition  of  banks 
of  issue  to  create  a  vast  mass  of  worthless  paper  ! "  (Tooke,  History  of 
Prices,  vol.  iii,  p.  237.) 

^  f  Mr.  Anderson,  manager  of  the  Glasgow  Union  Banking  Company, 
said,  on  his  examination  before  a  committee  of  the  House  of  Commons  in 
1841,  «  We  consider  that  the  circulation  does  not  require  any  regulation; 
our  advances  and  loans  we  regulate,  but  not  the  circulation  of  our  notes." 

Question  2,369,  by  Sir  James  Graham  :    "  Inasmuch  as  every  payment 
into  a  bank,  whether  in  the  shape  of  a  deposit,  or  to  the  credit  of  a  current 


94  MONEY. 

the  great  regulators  of  the  Scotch  banks  is  the  frequent 
exchanges  of  notes  and  liquidation  of  balances  between 
them.  Twice  a  week,  the  banks  exchange  and  redeem 
their  notes  in  Edinburgh,  besides  which,  those  of  the 
west  of  Scotland  exchange  and  redeem  twice  a  week  in 
Glasgow. 

There  have  been  but  few  failures  of  Scotch  banks, 
and  the  losses  of  the  public  by  them  in  175  years,  have 
been  only  £25,504,  which  is  infinitely  less  than  would 
have  been  the  wear  and  tear  of  the  coin  required  to 
effect  the  transactions  performed  by  means  of  the  banks. 

account,  bears  interest  day  by  day,  and  inasmuch  as  no  commission  is 
charged  upon  operations  on  an  account,  and  inasmuch  as  a  great  proportion 
of  the  people  receiving  money  in  Scotland  employ  bankers,  does  it  not 
follow  that  every  payment  made  in  local  notes  finds  its  way  almost  imme 
diately  within  the  space  of  twenty-four  hours  into  the  hands  of  some 
banker  ?  " 

Am.  "  I  think  it  does." 

Q.  2,370,  by  Mr.  Grote  :  "  Would  not  the  consequence  of  that  proposi 
tion  be,  if  followed  out,  that  there  would  be  no  notes  whatever  in  the  hands 
of  the  public,  but  that  all  the  notes  issued  by  each  bank  should  be,  in  fact, 
in  the  hands  of  other  banks  ?  " 

Ans.  "  That  is  the  effect.  There  are  three  millions  of  notes  out,  which 
is  a  very  small  amount ;  people  must  have  a  certain  amount  of  money  in 
their  pockets  and  boxes  at  home,  and  shopkeepers  must  keep  a  certain 
amount  of  money  in  their  tills,  the  daily  receipts  of  their  business  ;  and 
manufacturers  must  keep  notes  to  pay  people's  wages,  and  so  on  ;  but  that 
altogether  proves  but  a  small  proportion  compared  to  the  circulation  of 
England.  Our  three  millions  in  Scotland  amount  to  about  £1  per  head  of 
the  whole  population  ;  in  England,  although  you  have  a  gold  circulation  for 
everything  below  £5,  your  paper  circulation  amounts  to  £2  per  head.  I 
am  taking  about  fifteen  millions  for  the  population,  and  thirty  millions  for 
the  currency."  (Tooke,  History  of  Prices,  vol.  iii,  pp.  241,  244,  245.) 

The  circulation  of  the  Bank  of  England  and  of  the  English  country 
banks  in  1815  was  £46,271,000.* 

*  Alison's  History  of  Europe,  vol.  viii,  p.  130.     American  edition. 


MONEY.  95 

Far  from  having  produced  financial  crises,  they  have 
invariably  prevented  them .  In  1824,  when  the  English 
banks  and  bankers  aided  the  wild  speculations  "that 
prevailed,  the  Scotch  Banks,  on  the  contrary,  contracted 
their  loans.  In  1836  and  1847,  many  English  banks 
failed,  but  not  a  single  Scotch  bank  ceased  to  grant 
their  usual  facilities  to  their  dealers.  Forgeries  of  the 
bank  notes  are  unknown.  The  consequence  is  that  the 
Scotch  prefer  their  bank  notes  to  gold,  and  make  all 
their  collections  and  payments  through  the  banks,  which 
leads  to  great  economy  in  the  use  of  both  specie  and 
bank  notes. 

In  Scotland,  each  year  the  circulation  becomes  very 
much  reduced  in  March— it  increases  in  May— subse 
quently  falls,  though  not  as  low  as  in  March,  and  in 
creases  again  to  touch  the  highest  point  in  November. 
Most  of  the  payments  in  Scotland  are  made  in  May  and 
November.  These  fluctuations  occur  each  year,  whether 
the  banks  increase  or  diminish  in  number  ;  proving  that 
they  are  produced  by  the  wants  of  the  community,  and 
not  by  the  wishes  or  action  of  the  banks.     Similar  re 
sults  in  regard  to  the  fluctuations  of  the  currency  occur 
in  England  and  Ireland.     In  England  the  highest  cir 
culation  is  in  April,  and  the   lowest  in  August,  also 
following  the  movements  of  commerce,  industry,  and 
agriculture.     In  Ireland  the  lowest    circulation   is   in 
August  and  September,  just  before  the  harvests  and  the 
sales  of  cattle  ;  and  the  highest  in  January,  when  the 
cattle  and  crops  are  sold. 

"When  the  Government  determined  on  suppressing 
the  small  note  issues  in  England,  the  ministers  said  it 
was  their  intention  to  extend  the  measure  in  a  short 


96  MONEY. 

time  to  Scotland  and  Ireland.  As  soon  as  the  minis 
terial  intentions  were  known  in  Scotland,  a  great  ferment 
was  excited,  and  such  an  opposition  was  organized  that 
the  ministry  were  obliged  to  consent  to  appoint  com 
mittees  of  both  Houses  on  the  subject.  These  com 
mittees  sat  during  the  spring  of  1826,  and  investigated 
the  whole  subject  of  Scotch  banking  at  great  length, 
which  had  been  very  little  understood  in  England  before 
that  time  ;  and  the  result  was  so  eminently  favorable 
to  the  Scotch  banking  system,  that  the  ministry  aban 
doned  their  intention  of  attempting  to  alter  it."  * 

In  1845,  Sir  Kobert  Peel  obtained  the  enactment 
of  a  law  regulating  the  Scotch  banks,  somewhat  similar 
to  the  act  of  1844  regulating  the  English  banks.  It 
prohibits  all  issues  of  notes  under  £1,  and  no  bank 
created  after  May  1,  1845,  can  issue  notes  at  all.  The 
banks  existing  on  the  1st  May,  1845,  may  continue  to 
issue  notes,  but  are  limited  to  tho  amount  of  their 
average  circulation  during  the  year  ending  on  that 
day.  Any  notes  issued  beyond  that  amount  must  be 
represented  by  an  equivalent  amount  of  specie  in  their 
vaults,  the  idea  being;  as  in  England,  to  maintain  a 
uniform  amount  of  the  entire  circulation  by  means  of 
a  maximum  amount  of  issues  by  each  bank.  Two  or 
more  banks  may  be  consolidated  into  one,  and  the 
consolidated  bank  becomes  entitled  to  issue  the  same 
amount  of  notes  that  could  have  been  issued  by  the 
old  banks  before  their  consolidation.  All  the  banks 
are  obliged  to  forward  to  the  directors  of  the  stamp 
ofLce,  in  London,  weekly  returns  of  their  condition, 
which  returns  are  published  every  four  weeks  in  the 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  i,  pp.  262-263. 


MONEY.  97 

London  Gazette.     They  are  also  obliged  to  send,  once 
a  year,  a  list  of  the  names  of  all  their  stockholders. 

All  these  limitations  and  prohibitions  are  as  arbi 
trary  as  they  are  unreasonable.0  Why  prohibit  notes 
under  £1,  when  the  notes  of  less  amount  had  never  been 
found  injurious,  but  on  the  contrary  advantageous  ? 
Why  forever  fix  the  relation  of  circulation  and  specie 
for  a  future  unknown  to  all,  particularly  when  all  the 
writers  on  the  subject,  all  the  persons  who  testified 
before  the  committees  appointed  by  Parliament,  all  the 
reports  of  those  committees,  bore  the  highest  testimony 
in  favor  of  the  management  of  the  Scotch  banks  and 
of  the  results  of  their  operations  ?  Why  prohibit  new 
banks  of  issue  ?  The  past  proclaims  the  advantages 
of  competition,  and  is  not  the  future  the  echo  of  the 
past  ?  Why  exclude  others  from  exercising  rights 
similar  to  those  possessed  by  the  present  banks  ?  The 
enactment  of  laws  regulating  banking  is  undoubtedly 
a  great  error.f  Should  a  commercial  crisis  now  arise, 

"  For  more  than  a  century  no  bank  note  was  ever  unpaid  in  Scotland, 
and  it  is  inexplicable  how  Sir  Robert  Peel,  with  such  a  fact  before  his  eyes, 
should  have  listened  to  empty  theories  about  inflated  circulation,  excessive 
issues,  and  other  sonorous  phrases  of  like  quality.  Scotch  notes  have  al 
ways  been  paid,  because  the  Scotch  have  framed  a  sound  system  of  securing 
the  solvency  of  the  issues ;  and  had  the  Bank  of  England  gone  on  issuing 
one-pound  or  ten-shilling  notes  since  the  Conquest,  every  one  would  have 
been  paid  in  like  manner.  .  .  .  In  this,  as  in  many  other  matters,  the 
political  logic  of  the  Scotch  nation  has  been  admirable.  They  have  followed 
out  Adam  Smith's  doctrine  to  its  just  conclusion.  They  have  suffered  no 
arbitrary  line  to  restrict  the  economy  and  convenience  of  a  paper  currency 
at  the  dictation  of  shallow  dogmatism  and  caprice."  (North  British  Review 
November,  1861,  What  is  Money  ?) 

f  "  Governments  have  arrogated  to  themselves  the  task  of  regulating  the 
currency,  and  the  natural  effect  is,  that  nothing  is  less  regular.  At  present, 
each  day  brings  to  London  an  abundant  supply  of  fish,  meat,  vegetables,  &c., 

5 


98  MONEY. 

the  banks,  their  issues  being  limited,  will  no  longer  be 
able  to  grant  their  usual  facilities  to  commerce.  The 
community,  pressed  by  their  necessities,  will  be  forced 
to  withdraw  a  portion  of  their  deposits.  This  will  de 
crease  their  specie,  and  their  circulation  must  there 
fore  be  still  further  diminished,  and  a  financial  crisis,  a 
thing  unknown  in  Scotland  up  to  the  present  day, 

and  each  day  proves  that  the  persons  who  furnish  those  supplies  understand 
tolerably  well  what  is  required.  Were  government  to  regulate  the  markets 
as  they  do  the  currency,  there  would  be  a  succession  of  over  supplies,  dur 
ing  which  vast  quantities  of  provisions  would  be  spoiled,  followed  by  a 
succession  of  scarcities,  when  double  prices  would  be  paid  for  the  neces 
saries  of  life,  precisely  as  is  now  the  case  with  money.  Whenever  those 
who  control  the  operations  of  government  shall  learn  that  the  trade  in 
money  is  like  all  other  trades ;  that  every  man  has  a  right  to  associate  him 
self  with  his  neighbors,  and  to  trade  with  others  on  such  terms  as  they  may 
mutually  deem  most  likely  to  be  advantageous,  whether  of  limited  or  un 
limited  liability,  and  that  every  man  has  the  same  right  to  furnish  currency 
that  he  has  to  furnish  hats,  coats,  or  shoes ;  and  whenever  they  shall 
abolish  all  restrictions  thereupon,  there  may  and  will  exist  a  good,  sound, 
safe,  and  cheap  currency,  but  not  till  then."  (II.  C.  Carey,  The  Credit 
System,  p.  122.)  . 

"  Various  propositions  have  been  made  in  regard  to  that  of  both  Eng 
land  and  the  United  States,  by  persons  who  believe  that  more  steadiness 
would  be  obtained  by  having  a  single  body  or  institution  authorized  to  issue 
paper  to  be  used  therefor,  and  by  others  for  preventing  the  circula 
tion  of  notes  under  ten  and  twenty  dollars,  or  pounds,  &c.  Experience, 
however,  teaches  that  when  governments  undertake  to  regulate  trade  or 
commerce,  to  furnish  roads  or  education,  there  is  at  one  time,  or  in  one 
place,  an  over  supply,  and  at  another,  a  deficiency.  Such  would  be  the 
case  in  regard  to  currency.  Experience  also  teaches  us  that  when  the  peo 
ple  undertake  to  supply  themselves,  and  they  are  not  restrained  in  their 
actions,  the  supply  is  well  regulated.  In  no  part  of  the  world  is  the  power 
of  supplying  currency  so  much  divided,  in  none  are  silver  and  gold  to  so 
great  a  degree  dispensed  with,  and  in  no  country  of  the  world  is  there  one 
combining  so  many  of  the  requisites  of  a  perfect  currency,  as  are  to  be 
found  in  that  of  Massachusetts  and  Rhode  Island."  (Id.,  ib.,  pp.  122, 
123.) 


MONEY.  99 

will  aggravate  the  commercial  crisis.*  Mr.  Hume, 
in  a  debate  in  1848,  said,  "  with  respect  to  the  act  of 
1845  relating  to  Scotland,  he  ventured  to  say  that 
there  never  was  a  more  uncalled-for  piece  of  legislation 
in  the  world.  Not  one  single  soul  in  Scotland  was 
found  to  support  it,  and  all  the  Scotch  witnesses  who 
were  examined  before  the  committee,  spoke  of  its  bad 
effects."  f 

Mr.  G-.  du  Puynode,  from  whose  able  work,  "  De  la 
Monnaie,  du  credit,  et  de  I'impot,"  we  have  compiled 
many  of  the  preceding  remarks  on  the  Scotch  banks, 
closes  by  saying,  "  No  banks  in  the  world  have  been 
so  wisely,  so  prudently  managed  as  the  Scotch  banks, 
and  none  have  been  so  free  from  legislative  control. 
It  must  be,  therefore,  that  there  are  other  and  far 
preferable  guarantees  for  the  proper  administration  of 
banks,  than  those  resorted  to  by  legislators.  Is  it  not 
truly  a  strange  idea  to  ignore  intelligence  and  morality 
(he  should  have  added  self-interest)  as  sources  of  capa 
city  and  stability  ?  What  admirable  foresight  to  regu 
late  everything,  to  order  everything,  in  the  midst  of  a 
present  which  we  scarcely  understand,  in  contradiction 
of  a  past  admired  by  all,  and  in  the  face  of  a  future 
entirely  unknown  !  Without  liberty  and  without  com 
petition  there  can  be  no  true  progress  and  no  efficacious 
guarantees."  J 

Whenever  the  use  of  bank  notes  is  controverted, 
it  is  usual  to  cite  the  United  States  as  an  example  of 

*  G.  du  Puynode,  De  la  Monnaie,  du  credit,  et  de  1'impot,  vol.  i,  pp. 
270,  271,  edition,  1853. 

f  Tooke,  History  of  Prices,  vol.  v,  p.  494. 
\  Vol.  i,  pp.  274,  275. 


100  MONEY. 

its  pernicious  effects.  What  is  never  done,  however, 
is  to  furnish  proofs  to  sustain  that  conclusion.  Let 
us  examine  some  facts  in  regard  to  the  banks  of  the 
United  States,  during  the  period  from  1811  to  1836. 
Mr.  H.  C.  Carey  says :  *  "  The  period  from  1811  to  1836 
embraces  times  of  embargo,  non-intercourse,  war,  sus 
pension  of  specie  payments,  resumption  thereof,  change 
from  a  state  of  universal  war  to  one  of  universal  peace — 
that  period,  in  short,  which  has,  throughout  the  world, 
been  attended  by  the  most  remarkable  changes  in  the 
fortunes  and  prospects  of  individuals  and  of  nations, 
which  was  most  likely  to  exhibit  extraordinary  losses  by 
individuals,  and  consequently  by  banks/'  This  is  by  far 
the  most  trying  period  in  the  history  of  the  American 
banks,  and  the  results  are,  therefore,  less  favorable  to 
them  than  would  be  shown  by  any  other  lengthened 
period  that  can  be  taken.  The  crisis  of  1837-1839 
entailed  severe  losses  by  bank  failures  in  the  Western 
and  Southern  States  ;  but  in  the  Eastern  and  Middle 
States,  with  the  exception  of  the  Bank  of  the  United 
States  of  Philadelphia,  they  were  quite  moderate  ;  and 
the  greater  part  of  the  loss,  everywhere,  fell  on  the 
stockholders  and  not  on  the  public.  If  banks  and  paper 
money  were,  as  is  so  frequently  asserted,  injurious  to 
the  community,  could  they  have  increased  so  greatly 
in  the  United  States,  in  spite  of  all  the  adverse  circum 
stances  that  have  occurred  to  try  them  ?  f 

*  The  Credit  System,  p.  25. 

f  "  The  adoption  of  the  same  measures  by  which  it  has  been  attempted 
in  the  United  States  to  drive  bank  notes  out  of  circulation,  -would  have 
ruined  the  banks  of  England  and  of  France.  Nothing  could  have  prevent 
ed  the  ruin  of  those  of  the  United  States  but  the  general  confidence  of  man 
in  his  fellow  man."  (Id.,  ib.,  p.  37,  note.) 


MONEY.  101 

There  existed  in  the  United  States  : 

In  1811,    88  banks  with  an  aggregate  capital  of  $42,609,101 
1816,  246     "  "  «  «  89,822,297 

1820,307     "  "  «  «  101,714,551 

1830,328     «  «  «  «  110,186,608. 

1838,677     »  «  «  378,000,000 

The  average  number  of  banks  in  the  six  New  Eng 
land  States,  Connecticut,  Rhode  Island,  Massachusetts, 
New  Hampshire,  Vermont,  and  Maine,  from  1811  to 
1830,  was  97,  with  a  capital  of  about  $22,000,000.  In 
1830  there  were  172  banks,  with  a  capital  of  $35,226,- 
000.  In  twenty-five  years  the  number  of  bank  failures 
in  that  district  was  16,  with  a  capital  of  about  $2,000,- 
000.  The  total  loss  sustained  by  the  community  by 
these  failures  cannot  have  much  exceeded  $500,000, 
say  an  annual  average  of  $20,000,  or  T'rth  of  one  per 
cent,  on  the  aggregate  capital  of  all  the  banks,  and  prob 
ably  about  ^0  th  of  one  per  cent,  on  the  amount  of  the 
operations  facilitated  by  those  institutions.  If  this 
estimate  be  correct,  the  loss  attending  the  transactions 
with  the  banks  of  New  England,  during  more  than  a 
quarter  of  a  century,  has  been,  on  an  average,  one  dol 
lar  in  $50,000.  If  we  exclude  Connecticut,  in  which 
one  failure  was  attended  with  great  frauds  and  resulted 
in  great  losses,  the  loss  does  not  exceed  five  dollars  per 
million. 

Exactly   as  in  Scotland,,  the    circulation    of  bank 

"  The  Americans  have  the  utmost  faith  in  paper  money.  It  is  not  a 
blind  confidence ;  for  if  we  have  had  our  assignats,  they  have  had  their 
continental  money ;  and  it  would  not  be  necessary  to  retrace  their  history 
far  to  find  the  banks  failing  'en  masse.'  It  is  a  confidence  founded  upon 
reason— a  courage  the  result  of  reflection."  (M.  Chevalier's  United  States 
vol.  ii,  p.  247.) 


1O2  MONEY 


notes  in  New  England  is  very  moderate,  in  consequence 
of  the  activity  of  the  circulation  and  the  general  resort 
by  the  inhabitants  to  their  banks  for  all  their  payments 
and  collections.  The  circulation  in  1830,  notwithstand 
ing,  or  we  should  rather  say,  in  consequence  of  the 
great  number  of  the  banks,  only  amounted  to  $13,992,- 
000.  With  an  aggregate  capital  of  $35,226,000,  their 
discounts  only  amounted  to  $46,759,000,  and  they  held 
in  specie  $2,607,000.  Their  circulation  and  their  ad 
vances  to  their  dealers  remain  therefore  quite  limited  in 
proportion  to  their  means.*  Moreover,  again  exactly  as 
in  Scotland,  specie  is  hardly  ever  seen  in  this  portion 
of  the  United  States  ;  the  bank  notes  suffice  for  nearly 
every  transaction.  In  the  midst  of  extensive  commer 
cial  transactions,  in  a  district  where  an  excessively 
laborious  trading  population  are  incessantly  operating, 
the  entire  circulation  is  only  $7^  per  capita,  of  which 
$2  is  specie  ;  and  yet  this  amount  is  found  to  be  ample. 
In  France,  where  the  amount  of  transactions  is  propor 
tionally  much  smaller,  it  is  estimated  that  the  metallic 
circulation  alone  is  about  100  francs  ($20)  per  capita. 
What  expense,  what  labor  and  lack  of  confidence  do  the 
latter  figures  reveal ;  and  on  the  contrary,  what  confi 
dence,  ease,  and  economy  do  the  former  indicate  !  We 

Bank  Capital.        Total  Currency.    Specie  in  Banks.      Am't  of  Loans. 

*  New  England,  1830,  $35,226,000    $13,992,000   $2,607,000   $46,759,000 

Bank  of  England,      £15,000,000  £30,000,000  £8,000,000  £37,000,000 

The  currency  furnished  by  the  Bank  of  England  is  twice  the  amount  of 

its  capital,  whereas  that  furnished  by  the  banks  of  New  England  is  only 

one  third  of  their  capital.     In  England  it  requires  an  unemployed  capital 

invested  in  gold,  in  bank,  sixteen  times  as  great  as  that  of  New  England,  in 

addition  to  a  larger  quantity  in  circulation,  while  the  amount  of  its  business 

is  but  little  more  than  four  times  as  great."     (H.  C.  Carey,  The  Credit 

System,  p.  71.) 


MONEY.  103 

have  before  us,  apparently  two  entirely  different  socie 
ties,  two  different  civilizations.* 

In  the  State  of  New  York,  during  the  period  from 
1811  to  1830,  the  loss  of  the  community,  by  the  failure 
of  banks,  apart  from  that  of  the  stockholders,  cannot 
have  exceeded  $5  per  million  of  the  circulation,  and 
probably  not  $1  per  million  of  the  transactions  they 
have  aided. 

In  1830  the  entire  capital  of  the  banks  of  the 
States  of  New  York,  New  Jersey,  and  Pennsylvania 
amounted  to  $9  per  inhabitant,  being  less  than  one 
half  of  the  amount  at  that  period  in  New  England, 
which  was  $19J  per  inhabitant.  On  the  other  hand, 
their  discounts  amounted  to  double  the  amount  of  their 
capital,  whereas  in  New  England,  the  discounts  were 
not  quite  one  third  more  than  the  amount  of  the  capi 
tal  of  the  banks.  In  Pennsylvania,  where  the  banks 
were  not  allowed  to  issue  notes  under  $5,  and  where  con 
sequently  specie  forms  a  considerable  portion  of  the  cir 
culation,  the  bank  notes  in  circulation  are  greater  in 
proportion  to  the  capital  of  the  banks  than  in  Massa 
chusetts.  We  have  evidence  here  that  the  freer  and 

"  The  currency  of  France  is  equal  to  the  production  of  the  nation  for  144 

That  of  England  is  equal  to  "  "  110 

That  of  the  United  States  is  equal  to  "  "  23 

That  of  New  England  is  equal  to  "  »  21 

(H.  C.  Carey,  The  Credit  System,  p.  73.) 

"  New  England  maintains  a  currency  at  less  cost  than  any  other  part  of 
the  world."  (Id.,  ib.,  p.  108.) 

"  The  increase  of  confidence  manifested  by  the  substitution  of  bank 
notes,  checks,  and  drafts,  for  gold  and  silver,  tends,  therefore,  to  diminish 
the  proportion  of  capital  required  for  the  performance  of  exchanges,  and 
to  increase  the  productiveness  of  labor."  (Id.,  ib.,  p.  130.) 


104  MONEY. 

the  more  numerous  are  the  banks,  the  greater  is  the 
capital  that  guarantees  their  operations. 

Taking  the  aggregate  of  the  banks  of  New  England, 
New  York,  New  Jersey,  and  Pennsylvania,  during  the 
period  from  1811  to  1830,  the  entire  losses  of  the  pub 
lic  by  bank  failures  cannot  exceed  4-7  oth  of  one  per 
cent,  on  the  transactions  made  by  means  of  those  insti 
tutions.  During  the  last  fifteen  years  of  the  period 
they  do  not  exceed  $5  per  million,  and  probably  do  not 
even  reach  $1  per  million. 

The  total  number  of  bank  failures  in  the  United 
States  from  1811  to  1836  were  167,  of  which  130  south 
and  west  of  the  State  of  New  York.  The  average 
number  of  banks  in  operation  during  the  same  period 
was  242.  The  average  number  of  failures  has  been 
therefore  2f  per  cent.,  which  is  only  a  trifle  over  the 
average  failures  among  the  private  banks  of  England 
during  the  period  from  1821  to  1826  ;  a  period  which 
includes,  it  is  true,  the  great  commercial  crisis  of  1825, 
but  which  was  marked  by  no  other  extraordinary  event, 
such  as  a  transition  from  war  to  peace,  or  from  peace  to 
war,  that  might  cause  universal  disasters  of  this  nature^ 
From  the  first  institution  of  banks  in  the  United  States, 
to  the  year  1837,  the  bank  failures  have  been  about  |- 
less  than  those  that  occurred  in  England  during  the  three 
years,  1814,  1815,  and  1816  ;  and  the  losses  sustained 
by  the  public  are  probably  still  less  relatively  to  the 
amount  of  the  transactions  effected  by  means  of  the 
banks  in  the  two  countries.  In  the  presence  of  such 
facts,  what  justice  is  there  in  the  accusations  so  fre 
quently  made  of  unskilfulness  and  improvidence  in  the 
management  of  the  American  banks  ?  • 


MONEY.  105 

In  the  United  States  the  total  circulation  does  not 
exceed  ordinarily  $9  per  inhabitant,  of  which  one  quar 
ter,  at  most,  is  specie  ;  whilst  in  England  it  amounts 
to  $28  per  inhabitant,  of  which  one  third  is  specie.  In 
France  the  difference  is  probably  twice  as  great,  and  it 
is  well  known  that  the  greater  part  of  the  circulation 
in  that  country  is  specie. *  The  reason  of  the  larger 
circulation  in  France  than  in  England  and  in  the  United 
States,  is  self-evident.  Every  community  must  have, 
at  any  moment,  the  amount  of  currency  necessary  to 
transact  the  exchanges  then  taking  place.  Where  coin 
alone  is  used,  when  commerce  and  industry  require  an 
increase  of  the  circulation,  it  can  only  be  obtained  from 
private  hoards  of  specie  made  in  moments  when  the 
specie  is  in  excess  of  the  demand,  and  the  circulation  is 
therefore  contracting;  or  when  specie  is  imported  in  ex 
cess  of  the  immediate  wants  of  the  community.f  The 
community  is  thus  forced  to  keep  on  hand  at  all  times 
an  amount  of  coin  equal  to  the  maximum  amount  used, 
no  matter  for  how  short  a  period  a  portion  of  it  may  be 
required  ;  and  to  obtain  this  coin  the  country  must  part 
with  an  equivalent  amount  of  real,  useful  capital,  of 

*  This  synopsis  of  the  American  banks  is  mostly  taken  from  "  De  la  Mon- 
naie,  du  credit,  et  de  Fimpot,"  by  G.  de  Puynode,  who  derived  the  facts 
from  "  The  Credit  System,"  by  H.  C.  Carey,  of  Philadelphia. 

f  "  The  hoards  absorb  the  superfluous  produce  of  the  mines  when  it  is 
overflowing,  and  disgorge  it  again  when  it  is  wanted  for  use  ;  so  that  the 
fluctuations  of  supply  and  demand  do  not  affect  at  all  that  portion  of  the 
coin  which  circulates,  and  which  alone  operates  on  prices,  but  only  that 
portion  which  is  hoarded.  (Fullarton  on  the  Regulation  of  Currencies 
p.  71.) 

"  Upon  the  action  of  the  hoards  depends  the  whole  economy  of  the 
international  payments  between  specie-circulating  communities  ;  while  any 
operation  of  the  money  collected  in  hoards  upon  prices  must,  even  accord 
ing  to  the  currency  hypothesis,  be  wholly  impossible."  (Id.,  ib.,  p.  182.) 


106  MONEY. 

commodities  that  contribute  to  the  well  being  and  pro 
gress  of  all.  But.  where  the  exchanges  are  effected  with 
bank  notes,  the  issues  are  increased  at  those  moments 
when  the  exchanges  or  payments  are  large,  and  they 
contract,  by  the  return  of  the  superfluous  notes  to  the 
banks  that  issued  them,  as  soon  as  the  exchanges  or  pay 
ments  diminish.*  This  keeps  down  the  circulation,  at 
all  times,  to  the  lowest  possible  amount  required  to 
effect  the  exchanges  or  payments  taking  place.  Thus 
the  banks  in  Scotland  require  seven  millions  of  notes  to 
attain  an  average  circulation  of  only  three  millions.  Can 
any  system  of  currency  be  more  perfect  or  more  advan 
tageous  than  this  ?  It  facilitates  the  exchanges  of 
commodities  even  better  than  coin,  except  with  foreign 
nations  ;  when  properly  managed,  it  expands  and  con 
tracts  in  exact  accordance  with  the  transactions  of  com 
merce  and  industry,  while  it  does  not,  like  coin,  absorb 
a  large  portion  of  the  capital  of  the  community. 

*  "  Where  the  currency  is  purely  metallic,  the  additional  circulation  re 
quired  for  these  occasions  would  be  drawn  from  the  private  hoards ;  while, 
wherever  the  credit  system  prevails,  the  circulation  is  supplied  by  the 
banks."  (Fullarton  on  the  Regulation  of  Currencies,  p.  103.) 


CHAPTER  VIII. 

HAVING  sketched  the  striking  contrasts  between  the 
results  of  the  issues  of  government  paper  money,  and 
of  bank  notes,  let  us  attempt  to  deduce  from  them  the 
natural  laws  that  govern  paper  money. 

Money,  as  used  in  modern  civilized  communities,  is 
a  useful  instrument  that  facilitates  the  exchanges  of 
commodities  and  services.*  Anything  can  perform  the 
functions  of  money,  as  long  as  the  community  has  full 
confidence  that  it  will,  at  all  times,  command  the  com- 

*  "  The  use  of  the  currency  is  to  facilitate  the  transference  of  debts  OR 
SERVICES  DUE  from  one  person  to  another,  and  whatever  means  be  adop 
ted  for  this  purpose,  whether  it  be  gold,  silver,  or  paper,  is  a  currency  ;  .  .  . 
therefore,  .  .  .  currency  and  transferable  debt  are  convertible  terms : 
whatever  represents  transferable  debt  of  any  description  is  currency  ;  and 
whatever  material  the  currency  may  consist  of,  it  represents  transferable 
debt  and  nothing  else."  (Macleod,  Theory  and  Practice  of  Banking,  vol. 
i,  p.  25.) 

"  If  we  buy  a  sack  of  wheat,  we  do  so  because  it  possesses  certain  known 
qualities  which  are  decidedly  useful  to  us ;  we  therefore  buy  a  sack  of 
wheat  for  its  own  sake.  But  we  do  not  seek  to  obtain  coin  for  its  own 
sake  ;  it  is  not  capable  of  being  put  to  any  useful  purpose  directly,  but  we 
strive  to  obtain  coin  for  the  sake  of  the  power  it  confers  on  its  possessor  of 
obtaining  anything  else  that  may  suit  his  fancy  ;  for  the  sake  of  the  power 
it  has  of  commanding  the  services  of  others  ;  and  if  anything  else  besides 
coin  possessed  the  same  power,  it  would  be  equally  desirable  with  the  coin 
itself."  (Id.,  ib.,  vol.  i,  p.  389.) 


108  MONEY. 

modities  and  services  that  may  be  required  ;  but  any 
money  will  soon  be  discarded  when  it  ceases  to  com 
mand  the  commodities  and  services  desired.  It  is  the 
universal  confidence  in  gold  and  silver  as  money,  that 
has  thus  far  made  these  metals  the  most  reliable  instru 
ments  of  exchanges,  as  well  as  the  most  certain  meas 
ures  of  value.  But  were  paper  money  to  inspire  the 
same  confidence  and  be  as  universally  accepted  as  gold 
and  silver,  it  would  perform  all  the  functions  of  money 
even  better  than  those  metals,  as  it  is  lighter,  more 
easily  transported  and  counted,  far  more  economical, 
and  more  easily  increased  and  decreased  in  amount,  in 
accordance  with  the  wants  of  the  community.*  It  is  a 
mistake  to  suppose  that  a  thing,,  to  perform  successfully 
the  functions  of  money,  must  possess  intrinsic  value. 

*  "  Whether  money  has  any  value  in  itself,  whether,  as  substances  or 
as  materials,  it  is  an  object  of  desire  or  not,  this  for  the  purposes  of  society, 
which  is  dispatch  of  business,  is  as  indifferent  as  the  nature  of  the  yard 
stick.  If  it  measures  values  and  effects  exchanges,  if  it  marks  a  price,  and 
if  it  passes,  it  is  good  money.  The  best  money  is"  that  which  performs  these 
functions  with  the  greatest  accuracy,  with  the  greatest  economy,  and  with 
the  greatest  convenience." 

"  The  superiority  of  bank  money  over  coin  for  convenience,  economyr 
safety  and  dispatch  of  business  ...  is  so  great,  that  were  it  not  for  other 
considerations,  the  use  of  coin,  in  every  country,  ought  to  be  set  aside  en 
tirely.1"  (Bankers'  Magazine,  New  York,  August,  1846.) 

"There  is  clearly  no  difference  in  principle  between  a  metallic  and  a 
paper  currency,  only  one  depends  upon  a  wider  basis  of  credit  than  the 
other.  .  .  .  If  it  were  possible  to  have  a  paper  currency,  based  upon  the 
same  credit,  and  which  should  be  as  generally  received  as  the  metallic  cur 
rency,  it  would  be  a  preferable  form."  (Macleod,  Theory  and  Practice  of 
Banking,  vol.  i,  p.  30.) 

"  Every  man  desires  money  because  he  can  therewith  procure  whatever 
else  he  desires.  If  paper  can  procure  for  him  the  object  of  his  desire  as 
readily  as  gold  and  silver,  paper  is  as  desirable  to  him  as  gold  and  silver,'* 
(Gouge  on  Banking,  p.  13.) 


MONEY.  109 

Money,  at  present,  whatever  may  have  been  the  case  in 
olden  times,  measures  the  relative  value  of  things,  and 
is  beneficially  used  as  a  medium  of  effecting  exchanges, 
not  because  of  its  intrinsic  value,  but  simply  because 
it  is  universally  accepted  in  exchange  for  all  things. 
Intrinsic  value  was  necessary  in  the  infancy  of  civiliza 
tion,  when  the  slight  development  given  to  the  division 
of  labor,  and  consequently  to  the  exchanges  of  com 
modities  and  services,  rendered  it  important  that  any 
thing  received  in  exchange  should  possess  intrinsic, 
useful  qualities,  since  it  was  principally  with  a  view  to 
consumption  that  it  was  accepted.0  But  at  the  present 
day,  the  infinite  and  constantly  increasing  division  of 
labor  has  given  such  immense  importance  to  the  ex 
changes  of  all  things,  that  money,  as  a  mere  instrument 
for  facilitating  these  exchanges,  is  infinitely  more  useful 
to  humanity  than  any  commodity  whatever,  as  the  pos 
session  of  current  money  places  all  things  at  our  com- 

*  "  Intrinsic  value  was  indispensably  necessary  at  first  to  give  circulation, 
because  barter  was  kept  in  mind  ;  but  in  process  of  time,  when  money  be 
came  in  use,  that  is  entirely  lost  sight  of.  It  is  taken  as  money,  without 
reference  to  its  intrinsic  value.  If  gold  and  silver  were  to  lose  all  value 
independent  of  their  character  as  money,  would  they  be  stript  of  their 
character  as  money  ?  "  (Rees,  Encyclopaedia,  Money.) 

"  The  simplest  and  most  perfect  form  of  a  currency  is  that  which  repre 
sents  nothing  but  transferable  debt,  and  of  which  the  material  is  of  no 
intrinsic  value,  such  as  paper.  It  is  only  when  states  have  reached  a  high 
degree  of  civilization  that  they  adopt  this  perfect  form  ;  before  they  attain 
that,  the  material  of  it  entirely  consists  of  something  which  has  an  intrinsic 
value,  such  as  gold  or  silver.  But  this  intrinsic  value  is  a  secondary  cir 
cumstance,  and  not  the  one  which  gives  it  its  characteristic  as  a  currency. 
It  is  its  general  reception  as  the  visible  symbol  of  transferable  power,  which 
is  also  called  negotiability,  which  is  the  essence  of  a  currency,  and  distin 
guishes  a  coin  from  a  medal."  (Macleod,  Theory  and  Practice  of  Banking, 
vol.  i,  p.  45.) 


110  MONEY. 

mand.  But,  to  this  end,  the  thing  used  as  money  must 
be  universally  received,  at  all  times,  in  exchange  for 
commodities  and  services  ;  and  this  cannot  be  unless 
the  commodities  themselves,  and  the  persons  able  to 
render  the  services  desired,  exist.  In  a  desert  island, 
or  in  a  besieged  town,  money,  at  times,  is  nearly  use 
less,  because  the  things  desired  do  not  exist  there.  It 
is,  therefore,  evident  that  paper  money,  to  perform  suc 
cessfully  the  functions  of  money,  should  never  be  issued 
except  against  a  pledge,  direct  or  indirect,  of  a  greater 
value  of  useful  commodities,  needed  by  the  community, 
applicable  to  the  redemption  of  the  bank  notes 
issued.  Such  a  rule,  strictly  adhered  to,  would  make 
paper  money  a  perfect  instrument  of  exchanges,  be 
cause  the  redemption  of  bank  notes  in  commodities  and 
services  is  preferable  to  their  redemption  in  coin  ;  for 
commodities  and  services  are  useful  per  se,  whilst  the 
only  use  of  coin  is  as  means  of  obtaining  those  very 
commodities  and  services.*  The  redemption  of  bank 
notes  in  commodities  and  services  through  the  clearing 

*  "  Currency,  then,  being  merely  a  symbol  of  the  power  of  commanding 
services,  it  is  clearly  not  the  possession  of  the  currency,  but  the  services  it 
can  command,  that  constitute  the  wealth  of  the  possessor,  and  it  is  only  as 
it  represents  these  services  that  currency  can  be  considered  as  wealth. 
Currency  in  its  stagnant  state  is  not  wealth  ;  sovereigns  or  bank  notes  lying 
idle  in  a  box  are  of  no  use  to  their  owner ;  they  are  neither  meat,  nor  drink, 
nor  clothing,  nor  fuel,  nor  shelter,  nor  anything  else  that  is  useful ;  but  they 
are  the  proof  that  their  owner  has  the  right  to  get  all  these  things  when  he 
requires  them.  .  .  .  It  is  the  right  and  power  of  the  possessor  of  cur 
rency  to  command  the  services  of  the  community,  that  constitute  his 
wealth,  and  not  the  mere  evidence  of  it  contained  in  the  currency  he  holds ; 
and  the  less  costly  the  material  which  contains  this  evidence,  provided  it  be 
effectual  for  its  purpose,  the  better  it  is."  (Macleod,  Theory  and  Practice 
of  Banking,  vol.  i,  pp.  45,  46.) 


MONEY.  Ill 

house  of  the  industry  of  the  world,  from  which  every 
one  withdraws  precisely  the  things  he  desires  in  ex 
change  for  the  bank  notes  he  holds,  is  the  beau  ideal  of 
money  under  the  present  system  of  the  infinite  division 
of  labor.  Under  such  a  system,  paper  money  becomes 
a  mere  certificate  of  services  rendered,  for  which  the 
holder  has  not  been  remunerated.*  Each  holder,  by 
transferring  the  certificate,  transfers  his  claim  to  any 
parties  that  render  him  an  equivalent  service.  The 
redemption  of  money  in  commodities  and  services  (by 
this  phrase,  wherever  used,  is  meant  the  general  ac 
ceptance  of  money  in  exchange  for  commodities  and 
services)  is  the  main  requisite  to  the  proper  fulfilment 
of  the  functions  of  money,  and  is  just  as  indispensable 
to  the  precious  metals  as  to  paper  money.  Bank  notes 
are  made  redeemable  in  coin,  only  because  coin  is,  as 
yet,  more  universally  accepted  in  exchange  for  com 
modities  and  services  than  bank  notes.f  The  precious 

*  "  Currency  is  nothing  more  than  the  evidence  of  services  having  been 
rendered,  for  which  an  equivalent  has  not  been  received,  but  can  at  any 
time  be  demanded."  (Macleod,  Theory  and  Practice  of  Banking,  vol.  i, 
p.  24.) 

"  When  the  laborer  has  received  his  wages  in  money,  he  has  not  re 
ceived  an  equivalent  for  his  services,  but  only  something  which  will  enable 
him  to  get  what  he  requires  or  chooses.  The  money,  therefore,  that  he 
possesses,  is  not  the  equivalent,  but  it  is  the  symbol  or  proof  that  he  has 
rendered  services  for  which  he  has  not  yet  received  an  equivalent"  (Id., 
ib.,  vol.  ii,  p.  xliv.) 

f  "  Instead  of  representing  services  or  commodities  directly,  it  is  almost 
invariably  usual  to  make  the  paper  currency  of  a  country  represent  a  cer 
tain  portion  of  the  metallic  currency,  which  is  the  generally  received  repre 
sentative  of  all  services  and  commodities."  (Id.,  ib.,  vol.  i,  p.  30.) 

"  Paper  money  should  be  represented  by  commodities.  To  insure  this, 
it  is  made  convertible  into  the  best  known  commodities,  gold  and  silver." 
(Encyclopedia  Britannica,  Money.) 


112  MONEY* 

metals  circulate  everywhere ;  bank  notes  only  within  a 
more  or  less  restricted  circle  around  the  place  of  their 
issue.  The  object  in  presenting  bank  notes  for  redemp 
tion  in  coin,  as  long  as  they  are  in  good  credit,  is  inva 
riably  to  procure  with  the  coin  commodities  in  localities 
where  the  bank  notes  are  not  accepted  because  unknown. 
Government  paper  money  cannot,  successfully,  for 
any  length  of  time,  perform  the  functions  of  money,  be 
cause  it  is  invariably  issued  as  a  financial  resource,  in 
moments  of  emergency,  generally  when  war  is  ruthlessly 
destroying  both  life  and  property.  Government  paper 
money,  instead  of  representing  existing  results  of  labor, 
ready  to  redeem  the  paper  money  on  demand  of  the 
holders,  only  represents  property  and  lives  consumed  or 
destroyed,  and  labor  unproductively  employed.  How 
can  such  paper  issues  long  perform  the  functions  of 
money,  when  even  metallic  money  cannot  perform  them 
unless  constantly  redeemed  with  useful  results  of  labor 
and  with  useful  services  ?  Money  cannot  be  redeemed 
with  useful  results  of  labor,  unless  these  have  been  pro 
duced,  economized,  and  thus  exist  for  those  who  desire 
them  in  exchange  for  money.  It  will  be  said  that  the 
entire  property  of  a  nation  is  pledged  for  the  redemp 
tion  of  the  paper  money  issued  by  its  government.  But 
all  this  property  is  in  the  hands  of  individuals,  who  rely 
upon  it  for  their  own  well  being  and  enjoyment,  as  well 
as  to  meet  their  own  liabilities  ;  and  they  never  consent 
that  any  large  portion  of  the  results  of  their  labor  shall 
be  taken  from  them  for  the  use  of  the  government  or 
its  creditors.  Even  the  small  portion  they  are  willing 
to  contribute  for  that  purpose,  can  only  be  reached  by 
levying  taxes  ;  and  the  right  of  taxation  to  meet  state 


MONEY.  113 

indebtedness  is  rarely  exercised  by  governments  when 
it  becomes  unpopular,  because  burdensome.  History 
bears  abundant  witness  to  this  incontrovertible  fact. 

The  result  of  all  past  experience  in  regard  to  papei 
money,  is  conclusive  as  to  the  superiority  of  individual 
and  corporation  issues  over  government  issues  ;  and  the 
more  we  analyze  the  question,  the  clearer  this  becomes. 
Government  paper  money  does  not  possess  a  single 
element  of  the  indispensable  functions  of  money,  except 
that  of  being  received  in  payment  of  taxes  ;  and  that 
is  almost  invariably  withdrawn  from  it  as  soon  as  it  de 
preciates  in  value  to  any  extent,  because  governments 
can  no  more  use  a  depreciated  currency  than  individuals. 
Government  paper  money  cannot  inspire  geaeral  con 
fidence,  because  it  is  affected  by  every  unfavorable 
political  event,  by  wars  and  revolutions.  These  events 
have  much  less  effect  on  bank  notes  issued  against  com 
modities,  because  commodities  are  always  necessary  or 
useful  to  the  community,  and,  in  time  of  war,  generally 
rise  in  value  from  the  diversion  of  labor  from  industry  to 
war.  Government  paper  money  cannot  long  inspire 
general  confidence,  because  the  very  issue  of  a  compul 
sory  government  paper  money,  is  a  conclusive  proof  of 
impoverished  and  embarrassed  finances,  and  every  sub 
sequent  issue  is  an  evidence  of  increasing  embarrassment 
and  poverty.  Government  paper  money  also  lacks  that 
important  element  of  confidence  which  bank  notes  offer  : 
the  power  of  the  holders  to  enforce  payment  by  legal 
measures.  An  individual  cannot  enforce  by  legal  means 
the  most  sacred  claim  against  a  government.  Its  pay 
ment  depends  entirely  on  the  will  of  those  who  administer 
the  government.  This  greatly  contributes  to  the  rapid 


114  MONEY. 

depreciation  of  government  paper  money  when  confi 
dence  in  it  is  once  shaken.  Laws  making  government 
paper  money  a  legal  tender  cannot  arrest  its  deprecia 
tion  when  confidence  in  it  becomes  impaired.  Such  a 
law  can,  momentarily,  rob  the  creditor  classes  for  the 
benefit  of  their  debtors  ;  but  no  government,  however 
despotic,  has  yet  succeeded  in  compelling  producers  to 
produce,  and  dealers  to  sell,  commodities  at  a  loss  ;  and 
every  attempt  to  do  this,  only  disorganizes  industry  to 
the  great  injury  of  all.  If  the  injury  caused  by  a  forced 
circulation  of  government  paper  money  could  be  limited 
to  the  loss  through  the  depreciation  it  experiences,  it 
might  yet  be  submitted  to.  But  unfortunately  the 
moment  .the  depreciation  becomes  considerable,  the 
paper  money  drives  out  of  circulation  all  metallic 
money,  which  is  then  hoarded,  and  the  paper  money 
itself  ceases  to  perform  the  proper  functions  of  money ; 
the  community  are  thus  deprived  of  the  indispensable 
instrument,  money,  by  which  all  exchanges  are  effected, 
and  the  final  consequence  invariably  is,  the  cessation  or 
diminution  of  production,  for  no  one  will  produce  com 
modities  when  they  cannot  be  readily  exchanged  for 
whatever  he  desires.  If  governments,  when  they  think 
it  necessary  to  issue  paper,  would  only  allow  it  to  pass 
at  whatever  value  the  public  might  put  upon  it,  it 
would  be  infinitely  better  for  all,  as  the  exchanges  be 
tween  individuals  and  with  foreign  nations  would  then 
go  on  uninterrupted,  and  production  would  rather  be 
stimulated  than  impeded  by  the  burdens  entailed  upon 
the  community  to  meet  the  financial  necessities  of  the 
government.* 

*  "  If  paper  money  or  bank  notes  cannot  be  maintained  on  a  par  with 


MONEY.  115 

The  moment  that  the  depreciation  of  government 
paper  money  becomes  considerable,  this  becomes  a 
powerful,  almost  an  irresistible  argument  in  the  hands 
of  demagogues,  in  favor  of  its  repudiation.  The  poorer 
classes  are  then  arrayed  against  the  rich,  who  are  ac 
cused,  as  if  it  were  a  crime,  of  having  purchased  the 
paper  money  at  a  heavy  discount,  and,  therefore,  not 
entitled  to  its  reimbursement.  Every  one  then  seems 
to  forget  that  had  not  those  who  possessed  capital  pur 
chased  the  paper  money  when  it  was  offered  at  a  dis 
count,  it  would  much  sooner  have  fallen  to  zero. 

Another  grave  objection  to  government  paper  money 
is  that  the  amount  and  time  of  the  issues  is  not,  can 
not  ba,  regulated  by  the  wants  of  the  community,  but 
solely  by  the  necessities  of  the  government.*  A  currency 

gold,  the  next  best  thing  is  to  allow  all  persons  to  receive  the  notes  at  what 
ever  value  they  choose  to  put  upon  them.  ...  If  this  be  allowed,  no 
very  great  inconvenience  will  take  place  in  the  internal  trade  of  the  coun 
try."  (Macleod,  Theory  and  Practice  of  Banking,  vol.  i,  p.  336.) 

"  When  a  government  issues  paper  money,  inconvertible  and  com- 
pulsorily  current,  it  is  usually  in  payment  for 

1.  The  personal  expenditures  of  the  sovereign  or  the  governing  power. 

2.  Public  works  or  buildings. 

3.  Salaries  of  civil  servants. 

4.  Maintenance  of  military  and  naval  establishments. 

It  is  quite  clear  that  paper  created  and  so  paid  away  by  the  government, 
not  being  returnable  to  the  issuer,  will  constitute  a  fresh  source  of  demand 
(for  commodities  and  services),  and  must  be  forced  into  and  permeate  all 
the  channels  of  circulation.  Accordingly,  every  fresh  issue  beyond  the 
point  at  which  former  issues  had  settled  in  a  certain  rise  of  prices  and  of 
wages,  and  a  fall  (rise)  of  the  exchanges,  is  soon  followed  by  a  further  rise 
of  commodities  and  wages  and  a  fall  (rise)f  of  the  exchanges ;  the  deprecia- 

•t  What  is  designated  in  the  United  States  a  rise  of  exchanges,  is.  in  England, 
called  a  fall  of  the  exchanges,  because  a  lesser  amount  of  foreign  coin  is  obtained  in 
exchange  for  a  pound  sterling,  and  vice  versa.  The  English  expression  is  certainly 
very  incorrect,  and  would  mislead  any  one  but  an  expert  in  banking. 


116  MONEY. 

should  be  elastic,  should  contract  and  expand  in  ac 
cordance  with  the  volume  of  the  exchanges  it  facilitates. 
This  elasticy  of.  the  currency  is  of  vast  importance  to 
the  community,  and  is  one  of  the  great  advantages 
paper  money  offers  over  coin,  for  it  is  not  by  maintaining 
a  uniform  amount  of  currency  in  circulation  that  its 
value  can  be  maintained  uniform,  but  by  maintaining  a 
constant  uniform  relation  between  the  amount  of  the 
currency  and  the  amount  of  the  exchanges  it  facilitates.* 
In  one  word,  government  paper  money  offers  none 
of  the  guarantees  and  attributes  of  a  successful  me- 

tion  being  in  the  ratio  of  the  forcibly  increased  amount  of  the  issues.' 
(Tooke,  History  of  Prices,  vol.  i,  pp.  176,  177.) 

*  "  The  supply  of  the  circulating  medium  in  every  country  ought  to  be 
commensurate  in  quantity  to  the  number  and  value  of  the  exchanges  which 
it  has  to  perform.  And  as  the  number  and  value  of  such  exchanges  are 
liable  to  vary  with  every  variation  in  the  state  of  industry,  as  well  as  with 
the  progress  of  population,  it  is  obvious  that  the  monetary  system  would  be 
a  very  defective  one,  if  the  supply  of  the  circulating  medium  did  not  vary 
in  corresponding  proportions."  (Fullarton  on  the  Regulation  of  Curren 
cies,  pp.  100,  101.) 

"  If  any  legislative  interference  with  the  currency  at  all  be  desirable, 
its  aim  should  be  to  maintain  its  uniformity  in  value  as  far  as  possible. 
Now,  uniformity  in  value  does  not  mean  uniformity  in  quantity,  but  uni 
formity  in  the  amount  of  services  it  can  command,  and  consequently  it 
should  increase  or  diminish  in  exact  proportion  to  the  amount  of  operations 
it  represented.  Thus  in  Scotland  it  was  observed,  that  at  certain  periods 
of  the  year,  the  quantities'  of  currency  in  circulation  were  subject  to  certain 
regular  and  well  defined  fluctuations,  because  at  certain  periods  of  the  year 
a  greater  amount  of  operations  took  place  than  at  others,  and  the  Scotch 
banks  were  in  the  habit  of  increasing  their  issues  in  proportion  to  their 
operations,  and  it  was  this  very  fluctuation  in  quantity  that  prevented  the 
uniformity  in  value,  because  the  quantity  of  the  currency  in  circulation 
always  rose  and  fell  in  unison  with  the  amount  of  operations  ;  consequently 
the  same  amount  of  currency  represented  the  same  amount  of  service.  If 
the  currency  had  been  limited  in  quantity,  it  would  have  caused  the  most 
violent  fluctuations  in  value."  (Macleod,  Theory  and  Practice  of  Banking, 
voL  i,  pp.  208,  209.) 


MONEY.  117 

dium  of  exchanges,  and  its  issue  should  never  be  per 
mitted  by  any  people  that  have  a  voice  in  their  gov 
ernment,  and  any  regard  for  their  own  interest  and 
well 


*  "  There  is  not,  I  believe,  a  single  example  on  record,  of  the  power  of 
creating  money  out  of  cheap  materials  having  been  exercised  by  a  sovereign 
state  for  any  length  of  time,  or  through  any  season  of  public  difficulty, 
without  having  been  abused.  So  long  as  the  whole  supplies  of  the  year  are 
raised  by  means  of  taxes  and  loans,  no  great  mischief  can  befall ;  for  the 
paper  which  the  state  issues  in  its  payments,  will  in  that  case  all  flow  back 
again  regularly,  in  the  shape  of  loans  and  taxes,  and  there  will  be  no  sur 
plus  left  to  accumulate  in  the  hands  of  the  public.  But  say  that  the  nation 
is  once  embarked  in  a  destructive  and  expensive  war,  with  little  prospect 
of  bringing  it  soon  to  a  termination,  that  the  revenues  are  failing,  the  gov 
ernment  at  its  wit's  end  to  discover  some  new  tax  that  will  supply  the  defi 
ciency,  and  the  impatience  of  such  exactions  on  the  part  of  the  people 
already  at  its  height, — the  temptation  to  substitute  issues  for  taxation,  to 
relieve  the  wants  of  the  treasury,  by  intercepting,  through  the  depreciation 
of  the  currency,  a  portion  of  every  payment  in  its  transit  from  the  pocket 
of  the  debtor  to  that  of  his  creditor,  becomes  too  strong  to  be  resisted,  and 
the  iniquity  is,  probably,  perpetrated  with  the  general  acquiescence  of  a 
community,  who  are  scarcely  aware  of  its  tendency.  The  career  of  debase 
ment  once  entered  upon,  it  has  no  pause,  till  there  is  scarcely  any  value 
left  to  be  destroyed.  And  if,  in  this  country,  the  portentous  experiment 
of  the  suspension  of  cash  payments  was  not  followed  by  the  same  disastrous 
consequences  which  attended  the  issues  of  the  Mississippi  notes,  and  the 
assignats  in  France,  and  of  the  several  paper  currencies  put  forth  by  the 
principal  states  of  northern  Europe,  it  was  because  the  inconvertible  notes 
•were  disbursed,  not  in  payments  of  a  government,  but  in  the  loans  of  a 
bank."  (Fullarton  on  the  Regulation  of  Currencies,  p.  24.) 

"  It  is  not  so  much  by  convertibility  into  gold,  as  by  the  regularity  of 
the  reflux,  that  any  redundance  of  the  bank-note  issues  is  rendered  impossi 
ble  ;  and  it  was  by  the  preservation  of  the  reflux,  throughout  all  the  perils 
and  temptations  of  the  period  of  the  restriction,  that  the  monetary  system 
of  these  kingdoms  was  saved  from  the  utter  wreck  and  degradation  which 
overwhelmed  every  paper-issuing  state  on  the  Continent,  and  which,  in  all 
human  probability,  must  have  been  likewise  our  fate  had  the  currency  been 
issued  by  a  government  board  instead  of  the  Bank  of  England.  That  will 
be  an  evil  day  for  England,  when  the  supreme  executive  authority  of  this 


118  MONEY. 

As  money  must  be  constantly  redeemed  with  com 
modities  and  services,  paper  money,  to  perform  success 
fully  the  functions  of  money,  should  always  represent 
useful  commodities,  or  other  results  of  labor,  actually 
existing  in  the  hands  of  persons  willing  to  accept  the 
paper  money  in  exchange  for  them.  Paper  money, 
issued  by  an  individual  possessing  commodities  useful 
to  the  community,  of  greater  value  than  the  amount  of 
paper  money  issued,  can  be  as  readily,  and,  to  the  com 
munity,  more  advantageously  redeemed,  by  the  sale  of 
the  commodities,  than  by  gold  and  silver,  because  the 
purchasers  of  the  commodities  must,  in  exchange,  either 
return  the  paper,  money  issued,  or  something  that  will 
be  readily  accepted  by  the  holders  of  the  paper  money. 
But  to  inspire  full  confidence  in  paper  money  issued 
against  the  pledge  of  commodities  and  other  useful 
results  of  labor,  it  is  further  necessary  to  have  entire 
confidence  in  the  probity  of  the  parties  holding  the 
commodities,  so  as  to  insure  the  conviction  that  they 
are  of  greater  value  than  the  paper  money  issued  against 
them,  and,  also,  that  their  proceeds,  when  sold,  will  be 
applied  to  the  redemption  of  the  paper  money,  and  to 
nothing  else.  It  is  to  meet  this  requirement  that  banks 
intervene  beneficially.  Banks  with  large  capitals,  sub 
scribed  by  individuals,  undertake  the  emission  of  bank 
notes,  which  they  advance  to  the  producers  or  holders 
of  the  commodities.  The  capital  of  the  banks  is  an 
ample  security  for  any  deficiency  in  the  value  of  the 
commodities  against  which  the  bank  notes  are  loaned 

country  shall  take  the  administration  of  a  credit  circulation  into  its  own 
hands.  I  trust  never  to  see  it."  (Fullarton  on  the  Kegulation  of  Curren 
cies,  pp.  67,  68.) 


MONEY.  119 

or  issued,  as  well  as  for  any  misapplication  of  the  pro 
ceeds  of  the  commodities  when  sold.  The  self-interest 
of-  the  stockholders  and  officers  of  the  banks  is  a  suffi 
cient  guarantee  that  the  advances  of  bank  notes  will 
only  be  made  to  persons  of  known  probity,  possessed  of 
ample  property  to  insure  the  redemption  of  the  bank 
notes  advanced  to  them.  But  should  the  banks  make 
improper  advances,  the  consequences,  will  fall  on  the 
stockholders,  and  not  on  the  holders  of  its  notes.  The 
persons  to  whom  the  banks  make  advances  of  bank 
notes  are  merchants  or  manufacturers,  who  constantly 
watch,  with  the  vigilance  of  self-interest,  all  the  wants 
of  the  community,  so  as  to  produce,  or  purchase,  the 
commodities  most  needed,  and  therefore  most  sought 
for,  the  proceeds  of  which  will  not  only  reimburse  the 
advances  of  the  banks,  and  that  portion  of  their  own 
capital  invested  in  the  commodities,  but  also  leave  them 
a  remuneration  for  their  labor  and  intelligence.  This 
machinery  has  been  found  to  work  beneficially  for  all 
the  parties  in  interest,  the  banks,  the  commercial  and 
industrial  classes,  and  the  public,  as  is  fully  proved  by 
the  results  of  the  operations  of  the  banks  of  Scotland 
and  of  the  United  States. 

It  is  constantly  asserted  that  banks  transform  debts 
into  money  ;  that  the  same  property,  when  sold  on 
credit  three  times,  becomes  the  basis  of  three  different 
issues  of  bank  notes  or  bank  credits  ;  thus  transform 
ing  one  amount  of  property  into  three  times  the  same 
amount  of  purchasing  power.'-'5  The  following  analysis 

"  The  same  lot  of  goods  might  be  sold  to  a  dozen  persons,  and  each 
might  give  a  note,  and  each  of  these  twelve  notes  might  be  discounted  at 


120  MONEY. 

of  commercial  operations  shows  clearly  that  this  theory 
is  without  foundation,  being  based  on  supposed  facts 
that  never  occur ;  on  an  entire  ignorance  of  the  true 
philosophy  of  commerce  and  industry. 

A  is  a  capitalist  that  holds  commodities  which  he 
has  either  produced  or  purchased  with  his  capital.  He 
sells  to  B,  of  these  commodities,  to  the  extent  of 
$5,000,  payable  in  a  note  at  six  months  from  date. 
This  note  thus  represents  the  commodities  in  the  hands 
of  B,  drawer  of  the  note.  A,  desiring  to  purchase 
other  commodities  for  cash,  or  to  pay  for  commodities 
previously  purchased  on  credit,  has  this  note  discounted 
by  a  bank,  the  proceeds  of  which  he  receives  in  bank 
notes,  or  in  a  bank  credit,  with  which  he  pays  for  the 
new  commodities  purchased  by  him.  There  now  exists 
an  issue  of  bank  notes  or  bank  credits,  based  on,  and 
represented  by,  twice  the  amount  of  commodities  ;  those 
in  the  hands  of  B,  purchased  with  the  note  given  by 

bank.  The  inducement  then  would  be  to  buy  and  sell  goods  that  notea 
might  be  discounted  at  bank."  (Gouge  on  Banking,  p.  19.) 

"  Goods  or  commodities  pass  through  the  following  hands :  First,  the 
foreign  importer  or  manufacturer ;  second,  the  wholesale  dealer ;  third,  the 
retail  dealer  ;  fourth,  the  consumer.  It  is  clear  that  in  their  passage  from 
the  manufacturer  to  the  consumer,  they  will  give  rise  to  at  least  two  bills 
of  exchange — not  unfrequently  to  three.  Now  it  is  easy  to  suppose  that 
the  manufacturer,  the  wholesale  dealer,  and  the  retail  dealer,  may  all  be 
customers  of  the  same  bank,  and  if  they  all  have  their  bills  discounted  by 
the  bank,  it  may  unknowingly  advance  money  upon  each  of  them,  and  so 
will  advance  on  bona  fide  bills  just  three  times  the  value  of  the  property 
represented  by  them."  (Macleod,  Theory  and  Practice  of  Banking,  vol.  i, 
pp.  217-220.) 

"  In  the  most  legitimate  course  of  business  there  will  generally  be  two 
bills  afloat  representing  any  given  property,  so  that  in  the  ordinary  way 
there  will  be  at  least  twice  as  many  bills  afloat  as  ther-e  is  property  to  repre 
sent  them."  (Id.,  ib.,  vol.  i,  pp.  219,  220.) 


MONEY.  121 

him  to  A,  and  those  in  the  hands  of  A,  purchased  with 
the  bank  notes  or  bank  credits  obtained  by  him  in  ex 
change  for  B's  note,  discounted  by  the  bank.  If  B  sells 
the  commodities  purchased  of  A  to  C,  also  on  six 
months  credit,  and  has  C's  note  discounted  at  bank,  so 
as  to  purchase  new  commodities  for  cash,  or  to  pay  for 
others  previously  purchased  on  credit,  the  position  of 
things  then  becomes  as  follows : 

1st.  The  bank  holds  B's  note,  represented  by  the 
commodities  purchased  by  B  with  the  bank  notes  issued 
to  him  in  exchange  for  C's  note,  the  proceeds  of  which 
commodities  will  pay  B's  note. 

2d.  The  bank  holds  C's  note,  represented  by  the 
commodities  purchased  by  him  of  B  with  this  note,  the 
proceeds  of  which  commodities  will  pay  C's  note. 

3d.  A  holds  the  commodities  purchased  by  him  with 
the  bank  notes  issued  to  him  in  exchange  for  B's  note, 
which  commodities  represent  A's  original  capital,  and 
are  an  additional  guarantee  for  the  payment  of  B's 
note,  which  A  has  indorsed  when  discounted  by  the 
bank. 

We  thus  have  here  three  parcels  of  commodities, 
each  worth  $5,000,  against  two  issues  of  bank  notes  or 
bank  credits  of  each  $5,000,  and  not,  as  supposed  by 
the  theory,  two  issues  of  bank  notes  against  one  and 
the  same  property.  Increase  .the  number  of  sales  of 
the  same  property  ad  injinitum,  and  it  will  always  be 
found  that  for  each  new  issue  of  bank  notes  appears  a 
similar  amount  of  new  commodities,  because  commerce 
and  industry  only  seek  loans  as  means  of  purchasing  or 
producing  useful  commodities  ;  and  thus  there  is  a  con 
stant,  uniform  relation  maintained  between  the  issues 
6 


122  MONEY. 

of  properly  managed  banks  and  existing  commodities. 
Commodities  consumed  can  never  become  the  proper 
basis  of  an  issue  of  bank  notes.  If  each  party  that 
purchased  and  sold  the  same  commodities  on  credit 
were  to  spend  for  their  own  personal  enjoyment  the 
bank  notes  received  for  the  notes  discounted,  there 
would  be  several  issues  of  bank  notes  entirely  based  on 
one  and  the  same  parcel  of  commodities  ;  but  pay  day 
wrould  soon  come — the  drawers  of  the  notes,  having  con 
sumed  their  proceeds,  would  be  unable  to  pay  them, 
and  the  bank  that  had  discounted  the  notes  would  be 
come  bankrupt,  if  it  had  done  much  business  of  like 
nature,  and  its  notes  would  disappear  from  circulation. 
But  as  long  as  merchants  and  manufacturers  conduct 
their  operations  with  a  view  to  realize  profits  and  cap 
ital,  and  not  to  consume  their  capital,  they  will  never 
pay  interest  on  loans  for  any  other  purpose  than  to 
purchase  or  produce  useful  commodities,  which  com 
modities  become  means,  when  sold,  of  redeeming  the 
bank  notes  issued,  without  necessitating  the  interven 
tion  of  coin.  The  error  of  the  theory  we  combat  arises 
from  omitting  to  keep  in  mind  the  use  made  of  the 
bank  notes  or  bank  credits  issued  in  exchange  for  the 
mercantile  notes  discounted  by  the  banks.  The  bank 
notes  are  represented  and  will  be  redeemed  by  the 
commodities  purchased  with  them  ;  and  should,  from 
any  circumstance,  the  bank  notes  not  be  used  for  the 
purchase  of  commodities,  they  would  remain  in  the 
hands  of  the  party  obtaining  the  discount,  and  would 
enable  him  to  meet  his  engagements  as  well,  though 
to  the  community  not  so  advantageously,  as  the  com 
modities  he  had  intended  to  purchase  with  them.  A 


MONEY.  •  123 

constant  source  of  error  in  all  reasonings  on  transac 
tions  in  which  money  intervenes,  is  looking  upon  an 
exchange  of  commodities  against  money  as  the  final 
object  of  man's  desires.  It  would  be,  if  money  were 
sought  for  its  own  sake  ;  but  being  sought  and  desired 
exclusively  as  means  of  obtaining,  in  exchange  for  it, 
useful  commodities  and  services,  the  true  effect  of  any 
operation  can  only  be  ascertained  by  examining  it  in  its 
entirety— i.  e.,  by  looking  not  only  at  what  is  given  for 
money,  but  also  what  is  obtained  for  it,  by  the  same 
party,  when  parted  with. 

But  it  is  generally  supposed  that  the  demand  for 
money  by  commerce  and  industry  is  unlimited,  insa 
tiable,*  and  that  the  attempt  to  satisfy  this  demand  in 
variably  leads  to  over  issues,  which  depreciate  the  value 
of  the  currency,  increase  the  money  price  of  all  things, 
and  prevent  the  exportation  of  the  products  of  the 
country,  f  This  is  the  theory  that  led  to  the  bank  act 
of  1844,  limiting  the  issues  of  the  Bank  of  England. 
Let  us  examine  what  truth  there  is  in  these  assump 
tions. 

Is  it  true  that  the  demand  for  money  is  unlimited, 
insatiable  ?  The  spendthrift,  who  desires  to  obtain 
money  as  means  of  securing  commodities  and  services 

"  Of  money  an  individual  can  never  have  enough.  ...  It  is 
plainly,  therefore,  the  merest  drivelling  to  talk  about  the  demand  for 
money  being  limited  by  the  wants  of  the  public.  They  have  no  possible 
limit."  (Encyclopaedia  Britannica,  Money.) 

f  "  If  the  banks  at  any  time  make  money  more  plentiful  than  it  would 
be  if  only  gold  and  silver  circulated,  they  diminish  its  value  by  increasing 
its  quantity."  (Gouge  on  Banking,  p.  18.) 

"  The  banks,  by  expanding  their  issues,  cause  flour,  cotton,  and  other 
commodities  to  rise  so  high  at  home  that  they  cannot  be  exported  and  sold 
at  a  profit  abroad."  (Id.,  p.  22.) 


124  *  MONEY. 

for  his  own  personal  enjoyment,  is  insatiable  in  his  de 
sire  for  money  ;  and  he  alone  must  have  been  thought 
of  when  the  theory  was  imagined.  But  commerce  and 
industry  never  seek  money  except  when  it  can  be  prof 
itably  employed.  They  are  forced  to- pay  interest  on 
all  loans  of  money  obtained  by  them,  and  to  give  what 
is  supposed  to  be  ample  security  for  their  repayment  at 
a  given  day.  Self-interest,  therefore,  constantly  in 
duces  every  one  to  refuse  to  borrow  money  unless  it  can 
be  used  profitably.*  Now  it  is  a  well-established  law 
of  political  economy  that  whenever  anything  is  pro 
duced  or  imported  in  excess  of  the  wants  of  the  com 
munity,  or  of  its  ability  to  pay  for  it,  its  price  will  fall 
to  such  a  point  as  will  check  further  production  or  im 
portation.  Here  is  a  natural,  proper,  and  efficient 
limit  to  the  demand  for  money,  one  perfectly  in  har 
mony  with  the  interests  of  the  community  ;  and  that 
this  limit  exists  and  is  operative,  is  proved  by  the  well- 
known  fact  that  interest  frequently  falls  to  very  low 
rates,  not  in  consequence  of  the  increased  volume  of  the 

*  "  The  public  do  not  receive  notes  from  a  banker  without  paying  in 
terest  for  their  use ;  and  however  low  that  may  be,  they  will  take  no  more 
than  they  absolutely  require — nor  do  they  retain  notes  in  their  possession 
beyond  what  the  convenience  of  trade  requires  ;  and,  therefore,  if  issued  in 
excess  of  that  quantity,  and  if  convertible,  a  portion  would  be  instantly 
returned  upon  the  issuers.  Nor  can  we  conceive  any  means  whatever  by 
which  this  circulation  could  be  so  augmented  ;  and  we  have  deeply  to  regret 
that,  although  such  a  power  on  the  part  of  the  banks  has  been  taken  for 
granted  by  most  of  the  writers  during  the  past  twelve  years,  no  one  has  yet 
attempted  to  explain  by  what  process  it  could  be  accomplished  ;  and  we  are 
compelled  to  tliink  that  impressions  which  gained  ground  many  years  since 
as  applicable  to  an  inconvertible  currency  have  been  inadvertently  associa. 
ted  also  with  a  convertible  currency."  (Capital,  Currency,  and  Banking,  by 
James  Wilson,  Esq.,  M.  P.,  Editor  of  the  London  Economist — quoted  by 
Tooke,  History  of  Prices,  vol.  iii,  p.  195.) 


MONEY.  125 

currency,  but  solely  from  the  difficulty  of  finding,  mo 
mentarily,  a  profitable  employment  for  money.  In 
general,  the  rate  of  interest,  everywhere,  at  all  times, 
indicates  the  profit  which  the  employment  of  money  is 
supposed  to  yield.  This  supposed  profit  is  not  always 
realized,  but  whenever  it  becomes  evident  that  the  an 
ticipated  profit  is  turned  into  a  loss,  the  demand  for 
money  to  be  employed  in  the  same  operations  ceases 
entirely.  In  moments  of  embarrassment  and  panic, 
when  confidence  is  shaken,  the  rates  of  interest  are  very 
high,  because,  then,  all  kinds  of  property  can  be  pur 
chased  at  very  low  rates,  generally  much  under  the  cost 
of  production.  Everybody  then  seeks  to  borrow,  and 
is  willing  to  pay  high  rates  of  interest ;  one  with  a  view 
to  purchase  at  the  low  prices  then  ruling — another  from 
a  desire  to  avoid  the  heavy  sacrifices  that  the  realization 
of  property,  in  such  moments,  invariably  entails.  In 
the  United  States  money  is  generally  worth  from  7  to 
10  per  cent.,  not  because  it  is  scarce,  but  because  it  can 
be  employed  so  as  to  yield  a  profit  over  and  above  those 
rates  of  interest.  In  Europe,  if  interest  is  only  worth 
from  3  to  5  per  cent.,  it  is  simply  because  the  profits 
arising  from  its  employment  there  will  not  permit  the 
payment  of  higher  rates. 


CHAPTER  IX. 

IT  is  self-evident  that,  if  the  theory  that  the  volume 
of  the  currency  affects  prices  be  true,  every  rise  or  fall 
in  the  money  price  of  things  which  proceeds  altogether 
from  an  alteration  in  the  value  of  money  must  affect  all 
things  equally — must  raise  or  lower  prices  everywhere 
where  the  currency  is  used.  But  such  an  effect  has 
never  yet  been  known  to  take  place  except  ivitJi  irre 
deemable  government  paper  money.  No  influx  of  the 
precious  metals,  and  no  issues  of  bank  notes  convertible 
into  coin,  have  ever  produced  such  a  result.  Much  has 
been  said  and  written  on  the  effect  on  prices  of  the  in 
flux  of  the  precious  metals  after  the  discovery  of 
America.  A  rise  of  prices  took  place  in  the  17th 
century.  As  America  had  been  discovered  in  1492,  and 
had  furnished  a  large  supply  of  the  precious  metals  in 
the  16th  and  17th  centuries,  the  rise  of  prices  having 
followed  these  events,  it  was  ascribed  to  them,  without 
much  examination  of  the  facts.  Now  because  certain 
events  follow  each  other,  it  is  not  always  correct  to 
assert  that  the  anterior  event  is  the  cause  of  those  that 
follow.  There  is  every  reason  to  believe  that  the  rise 
of  prices  in  the  17th  century  was  entirely  the  conse 
quence  of  the  increase  of  industry,  commerce,  and 


MONEY.  127 

civilization,  which  augmented  the  demand  for  all  the 
commodities  that  contributed  to  man's  well  being.  "  No 
rise  of  prices  can  be  discovered  until  1570,  fifty  years 
after  the  entry  of  the  Spaniards  into  Mexico,  and  almost 
thirty  years  after  the  discovery  of  the  Potosi  silver 
mine.  The  ultimate  range  of  prices  was  not  reached 
till  1640— and  in  1640  and  subsequently,  the  rise  of 
prices  was  equal  to  about  200  per  cent.,  while  the  in 
crease  in  the  whole  stock  of  gold  and  silver  was  equal 
to  at  least  600  per  cent."  *  Fullarton  says  :  "  We  ob 
serve  no  such  consentaneous  movements  of  prices  co 
inciding  with  the  fluctuations  of  the  bank-note  cir 
culation.  ...  So  little  have  these  variations  (in 
the  price  of  grain)  been  influenced  by  the  amount  of 
the  issues  of  the  Bank  of  England,  that  there  appears 
from  the  investigations  of  Mr.  Tooke  to  have  occurred 
only  one  instance  within  the  last  half-century  in  which 
an  increased  circulation  of  notes  has  coincided  with  a 
rise  of  the  price  of  wheat  (and  that  only  a  temporary 
and  trifling  rise),  and  one  other  case  in  which  a  reduc 
tion  of  the  bank's  issues  has  been  simultaneous  with  a  de 
cline  in  the  price  of  wheat,  namely,  in  1824  and  1831.  .  .  . 
The  expansions  and  contractions  of  the  bank-note  cur 
rency,  which  under  certain  circumstances  are  observed 
to  accompany  those  fluctuations  of  prices,  are  not  the 
causes,  but  the  consequences  of  such  fluctuations ;  they 
do  not  precede,  but  follow  them."  f 

*  Tooke,  History  of  Prices,  vol.  vi,  p.  232. 

f  Regulation  of  Currencies,  pp.  98-100. 

"  The  expansion  and  contraction  of  bills  of  exchange,  book  credits,  and 
of  country  bank  notes,  are  the  consequences,  and  not  the  cause,  of  a  rise 
and  fall  of  prices."  (Tooke,  History  of  Prices,  vol.  i,  p.  149.) 

"  The  general  depression  of  credit  and  of  prices,  in  1793,  was  the  main 


128  MONEY. 

Mr.  James  Wilson  says  :  "  From  the  beginning  of 
1841  to  1843  we  had  an  uninterrupted  favorable  ex 
change,  the  bullion  in  the  bank  rapidly  increased  all 
the  time  from  £3,965,000  to  upward  of  £11,000,000  ; 
every  means  were  used  which  properly  could  be  to 
increase  the  circulation  ;  but  it  fell,  during  that  time, 
from  £35,600,000  to  £34,049,000,  and  during  the  whole 
period  the  prices  of  commodities  generally  were  sink 
ing  lower  ;  and  in  1842,  the  year  in  which  the  largest 
import  of  gold  took  place,  was  the  most  depressed  in 
prices,  and  the  lowest  in  the  circulation  of  any  during 
the  last  thirty  years.  Nor  were  the  stocks  of  commodi 
ties  generally  above  an  average,  and  the  imports  were 
much  below  an  average  ;  and  up  to  this  time  (April 
19,  1848),  though  bullion  has  latterly  increased  to 
upward  of  £16,000,000,  and  the  recent  efforts  of  the 
bank  to  increase  the  circulation  have  proved  unavail 
ing,  and  the  prices  of  all  kinds  of  commodities,  even 
in  the  absence  of  any  unusual  stocks,  with  some  few 
exceptions,  continue  unprecedentedly  low.  The  events 
of  the  last  four  years  must  go  far  to  convince  even  those 
who  will  not  exercise  the  patience  to  investigate  and 
understand  the  theory,  that  a  great  error  has  existed 
in  regard  to  the  connection  between  bank  circulation 
and  prices  of  commodities."  * 

cause  of  the  contraction  of  the  circulation,  and  not  the  contraction  of  the 
circulation  a  cause  of  the  depression."  (Tooke,  History  of  Prices,  vol.  i, 
p.  197.) 

"Mr.  Hume,  in  a  debate  in  the  House  of  Commons,  in  1836,  said: 
'  My  opinion  is,  that  the  quantity  of  money  depends  on  the  rise  of  prices ; 
and  that  the  rise  of  prices  does  not  depend  on  the  quantity  of  money."* 
(Id.,  ib.,  vol.  iii,  p.  174.) 

*  Capital,  Currency,  and  Banking,  quoted  by  Tooke,  History  of  Prices, 
vol.  iii,  p.  209. 


MONEY.  129 

Mr.  Danson  says :  "  Between  March  and  September, 
1845,  joint-stock  speculations,  for  the  immediate  in 
vestment  of  capital,  were  set  on  foot,  involving  a  larger 
aggregate  amount  than  had  ever  before  been  so  involved 
in  the  country.  The  amount,  to  raise  which,  for  rail 
ways  alone,  the  sanction  of  Parliament  was  actually  ap 
plied  for  in  the  following  session,  exceeded  £340,000,000  ; 
and  if  we  include  all  the  new  schemes  on  which  scrips, 
or  letters  of  allotment,  were  actually  selling  in  the 
market  at  a  premium  in  July,  August,  and  September, 
1845,  the  amount  cannot  be  estimated  at  less  than 
£500,000,000." 

"  During  those  months  in  which  the  purchases  and 
sales  of  railway  property  were  most  numerous  and  ex 
tensive,  while  everybody  was  buying  and  selling  shares, 
and  the  current  rate  of  interest  was  only  2^  per  cent., 
that  portion  of  the  circulating  medium  which  consisted 
of  Bank  of  England  notes  was  but  very  slightly,  if  at  all, 
increased  ;  and  it  reached  its  greatest  amount  when 
the  prices  of  shares  were  lowest — when  everybody. had 

"  The  assumption  of  the  peculiar  influence  of  bank  notes  on  prices,  and 
on  the  exchanges,  is  unsustained  by  fact  or  argument."  (Tooke,  History  of 
Prices,  vol.  Hi,  p.  156.) 

"  The  balance  of  payments  with  nearly  all  Europe  has  for  about  four 
years  past  been  in  favor  of  this  country,  and  gold  has  been  pouring  in  till 
the  influx  amounts  to  the  unheard-of  sum  of  about  fourteen  millions  ster 
ling.  Yet  in  all  this  time,  has  any  one  heard  a  complaint  of  any  serious 
suffering  inflicted  on  the  people  of  the  Continent  ?  have  prices  there  been 
greatly  depressed  below  their  ranges  in  this  country  ?  have  wages  fallen,  or 
have  merchants  been  extensively  ruined  by  the  universal  depreciation  of  their 
stock  ?  There  has  occurred  nothing  of  the  kind.  The  tenor  of  commercial 
and  monetary  affairs  has  been  everywhere  even  and  tranquil ;  and  in 
France  more  particularly,  an  improving  revenue  and  extended  commerce 
bear  testimony  to  the  continued  progress  of  internal  prosperity."  (Fullar- 
ton  on  the  Regulation  of  Currencies,  p.  134.") 

6* 


130  MONEY. 

ceased  to  speculate — when  the  number  and  amount 
of  current  transactions  were  reduced  to  the  lowest  point 
by  discredit,  and  when  the  current  rate  of  interest  for 
first-class  bills  had  risen  from  2  \  to  4^  per  cent."  * 

Tooke  says  :  u  Cotton,  at  the  end  of  May,  1851,  was 
60  to  70  per  cent,  below  the  rates  in  January  1851, 
and  during  the  summer  great  embarrassment  and  many 
failures  were  the  consequence.  In  July,  August,  and 
September,  there  was  great  depression  in  the  produce 
markets.  The  decline  of  prices  of  colonial  produce  was 
20  to  30  per  cent.  The  circulation  of  the  Bank  of 
England  and  of  the  country  banks  was,  in  January, 

1850,  £29,720,000;  in  November,  1851,  £30,860,000. 
The  highest  Bank  of  England  circulation  was  in  July, 

1851,  £21,400,000,  and  yet  July  was  among  the  gloom 
iest  months  of  the  whole  year."    (Vol.  v,  pp.  261-266.) 
"  As  far  as  trustworthy  evidence  can  be  obtained,  there 
are  no  facts  in  the  experience  of  the  last  nine  years  which 
justify  the  conclusion  that  in  this  country  the  fluctua 
tions  of  prices,  the   course  of  trade,  or  the  increased 
demand  for  goods  arising  out  of  the  large  exports  to 
America  and  Australia,  were  immediately  preceded  by 
or  connected  with  changes  in  the  amount  of  the  aggre 
gate  outstanding  circulation  of  bank  notes.     In  other 
words,  all  the  evidence  available  to  us  points  distinctly 
and  uniformly  to  the  conclusion  that  the  fluctuations 
of  the  bank-note  circulation  were  determined  and  regu 
lated  by  the  consequences  flowing  from  previous  appli 
cations  of  capital  and  credit  in  particular  modes.  .  .  . 

*  Extract  from  a  paper  read  before  the  Statistical  Society  of  London, 
in  January,  1847— quoted  by  Tooke,  History  of  Prices,  vol.  iii,  pp. 
299,  300.  "  . 


MONEY. 


131 


In  a  great  number  of  specific  instances,  it  can  be  shown 
conclusively,  that  fluctuations  of  price  of  the  most  im 
portant  kind,  and  in  the  largest  markets  of  the  country, 
took  place  either  without  the  concurrence  of  any  change 
whatever  in  the  bank-note  circulation,  or  contempora 
neously  with  the  occurrence  of  a  change,  the  precise 
opposite  of  that  which  are  the  grounds  on  which  the 
currency  theory  is  built."  (Vol.  v,  pp.  344,  345.) 

"In  the  nine  years,  1848  to  1856,  the  metallic  circula 
tion  of  the  leading  commercial  nations  of  the  world  has  been 

increased  by  about  one  third,  or  say  30  per  cent 

It  is  not  true  that  even  an  increase  by  one  third  of  the 
quantity  of  metallic  money  has  led  to  a  corresponding 
increase  of  general  prices  ;  nor,  in  the  case  of  large 
groups  of  commodities,  to  any  increase  of  price  what 
ever  ;  but  on  the  contrary,  that  prices  have  rather  sunk 
to  a  lower  than  risen  to  a  higher  level."  (Vol.  vi,  pp. 
158-194.) 

"  It  is  impossible  to  affirm  that  the  range  of  general 
prices  has  been  sensibly  raised,  by  the  mere  operation 
in  the  form  of  metallic  money  of  even  £160,000,000  to 
£170,000,000  of  new  gold  introduced  into  the  commer 
cial  world.  All  the  instances  of  an  important  variation 
in  price,  comparing  1857  and  1851,  admit  of  being  ac 
counted  for  by  circumstances  affecting  the  supply  or 
the  demand."  (Vol.  vi,  p.  224.)  * 

*  "  How  then,  let  me  ask,  with  all  the  facilities  of  communication 
at  present  existing,  is  it  possible  that  the  price  of  the  metal  can  ever 
fall  materially  below  the  minimum  (31.  17s.  9d.  at  which  the  Bank  of 
England  is  obliged  to  purchase  all  standard  gold  bullion  tendered  to  it  for 
sale) ;  or  that,  with  this  universal  reservoir  (the  Bank  of  England)  forever 
open  to  receive  it  at  a  fixed  valuation,  any  considerable  portion  of  the 
yearly  produce  of  the  gold  mines  should  be  thrown  on  the  market  of  the 


132  MONEY. 

"  I  cannot  help  thinking  that  there  is  a  lurking  im 
pression  among  the  doctrinaires  of  the  currency  theory, 
arising  mainly  from  the  use  of  the  term  '  issue  of  paper 
money,'  which  leads  them  to  confound  bank  notes,  strict 
ly  convertible  into  coin,  with  a  compulsory  and  incon 
vertible  paper  currency.  .  .  .  But  bank  notes  are  issued 
to  those  only  who,  being  entitled  to  demand  gold,  des  re 
to  have  bank  notes  in  preference  ;  and  it  depends  upon 
the  particular  purposes  for  which  the  notes  are  em 
ployed,  whether  a  greater  or  less  quantity  is  required. 
The  quantity,  therefore,  is  an  effect,  and  not  a  cause  of 
demand."  (Yol.  iii,  pp.  175-177.) 

Fullarton  says  :  "  I  deny  that  we  have  any  evi 
dence  of  such  a  redundance  of  circulating  bank  notes 
having  ever  existed  in  coincidence  with  a  really  convert- 
world  in  Ftich  a  manner  as  to  occasion  its  depreciation?  .  .  ,  However 
large  that  surplus  may  be,  after  supplying-  the  periodical  wants  of  the  other 
countries  of  the  world  for  consumption  and  for  coinage,  it  is  obvious  that 
the  whole  must  find  its  way  into  the  vaults  of  the  Bank  of  England,  there 
to  remain  buried,  and  wholly  inoperative  on  prices,  till  called  forth  by  some- 
new  demand  for  additional  circulation.  This  circumstance,  I  apprehend, 
so  long  as  the  system  shall  endure-,  must  continue  a  perpetual  and  insupera 
ble  obstacle  to  any  action  on  prices,  as  measured  in  gold  coin,  from  the  in 
creased  productiveness  of  the  mines.  It  is  true  that,  for  every  ounce  of 
gold  which  it  thus  purchases,  the  bank  may,  if  that  mode  of  payment  be 
preferred,  issue  a  corresponding  amount  of  notes;  .  .  .  but  these  notes- 
will  fare  Just  as  all  the  issues  of  the  bank  invariably  fare,  which  are  sent 
Into  a  market  having  no  employment  for  them.  .  .  .  They  will  fast 
flow  into  the  bank,  in  payment  of  the  bills  of  exchange  previously  in  its 
hands,  as  they  successively  become  due,  while  there  will  be  no  vent  for  its 
notes  in  new  discounts  ;  and  the  result  of  the  whole  will  be,  that,  at  the  end 
of  perhaps  a  week,  the  bank  will  find  itself  with  a  million  more  of  coin  in 
its  coffers,  and  a  million  less  of  securities  ;  so  long  as  the  bank  has  a  pound 
note  out  on  credit,  the  channel  of  reflux  must  remain  open,  and  the  bank 
is  utrerly  impotent  to  add  a  superfluous  note  to  the  currency,"  (Fullarton 
on  the  Regulation  of  Currencies,  pp.  77-79.) 


MONEY.  133 

ible  state  of  the  currency,  as  to  raise  prices  or  to  cause 
an  efflux  of  the  precious  metals,  or  that  such  a  redund 
ance  under  such  circumstances  is  possible/'  *  "  It  is 
self-evident  that  bank  notes,  payable  at  all  times  in 
coin  of  a  definite  weight  and  quality,  can  never  sensi 
bly  fall  in  value  below  the  coin  into  which  they  are 
convertible/'  f  "  What  has  chiefly,  I  suspect,  given 
currency  to  the  notion  that  the  issues  of  the  Bank  of 
England  are  in  a  high  degree  accessory  to  the  extrava 
gances  of  the  speculative  mania,  has  been  the  pressure 
on  the  Bank  of  England  for  discounts,  after  the  malady 
has  reached  its  concluding  stage,  when  the  excitement 
has  come  to  a  pause,  when  the  market  irrecoverably 
sinking,  discredit  spreading  rapidly,  and  payments  can 
no  longer  bs  deferred.  Then,  certainly,  if  the  bank 
complies  with  these  applications,  it  must  comply  with 
them  by  an  issue  of  notes,  for  notes  constitute  the  only 
instrumentality  through  which  the  bank  is  in  the  prac 
tice  of  lending  its  credits.  Bat  those  notes  are  not 
intended  to  circulate,  nor  do  they  circulate.  There  is 
no  more  demand  for  circulation  than  there  was  before. 
On  the  contrary,  the  rapid  decline  of  prices  which  the 
case  in  supposition  presumes,  would  necessarily  contract 
the  demand  for  circulation/'  f 

"  Applications  to  the  bank  for  extended  discounts 
occur  rarely,  if  ever,  in  the  origin  or  progress  of  exten 
sive  speculations  in  commodities.  These  are  entered 
into  for  the  most  part,  if  not  entirely,  in  the  first  in 
stance,  on  credit,  for  the  length  of  term  usual  in  th'e 

*  On  the  Regulation  of  Currencies,  p.  26. 
f  Ib.,  p.  117. 
\  Ib.r  p.  105. 


134  MONEY 

several  trades  ;  thus  entailing  on  the  parties  no  im 
mediate  necessity  for  borrowing  so  much  as  may  be 
wanted  for  the  purpose  beyond  their  own  available  cap 
ital.  And  if  the  events  fully  justify  the  grounds  on 
which  the  speculative  transactions  were  entered  into 
(thus  admitting  of  sales  for  consumption  in  time  to 
replace  the  capital  embarked),  there  is  no  unusual  de 
mand  for  borrowed  capital  to  sustain  them.  The  term, 
speculation,  in  its  obnoxious  sense,  is  not,  in  such  cases, 
applied  to  the  transactions  ;  and  the  parties  engaged 
have  the  credit  of  superior  sagacity.  It  is  only  when, 
by  the  vicissitudes  of  political  events,  or  of  the  seasons, 
or  other  adventitious  circumstances,  the  forthcoming 
supplies  are  found  to  exceed  the  computed  rate  of  con 
sumption,  and  a  fall  of  prices  ensues,  that  an  increased 
demand  for  capital  (credit  ?)  takes  place  ;  the  market 
rate  of  interest  then  rises,  and  increased  applications 
are  made  to  the  Bank  of  England  for  discount/'* 

It  is  said  that  the  value  of  money,  and  particularly 
of  paper  money  which  has  no  intrinsic  value,  is  main 
tained  by  limiting  its  quantity.^  This  theory  is  based 
on  the  fact  that  when  anything  used  as  money  exists 
in  greater  quantity  than  is  necessary  to  effect  the 
daily  occurring  exchanges,  it  has  a  tendency  to  fall  in 

*  Tooke,  History  of  Prices,  vol.  iii,  pp.  125,  126. 

f  "  Whatever  may  be  the  material  of  the  money  of  any  country,  .    . 
and  however  destitute  it  may  be  of  all  intrinsic  value,  it  is  yet  possible,  by 
sufficiently  limiting  its  quantity,  to  raise  its  value  in  exchange  to  any  con 
ceivable  extent."     (McCulloch,  Money,  chap,  ii.) 

"  There  can  be  no  doubt  that  by  sufficiently  limiting  its  quantity,  a  cur 
rency,  though  destitute  of  intrinsic  worth,  may  be  made  to  circulate  on  a 
level  with  gold  and  silver,  or  higher,  if  it  be  desired"  (Encyclopaedia 
Britannica,  Money.) 


MONEY.  135 

its  exchangeable  value  because  persons  will  not  retain 
it  idle,  as  it  then  produces  no  income,  and  may  depre 
ciate  still  further.  But  of  all  currencies,  a  paper  cur 
rency  issued  by  solvent  banks  or  individuals  is  the  one 
least  liable  to  experience  this  result  ;  in  fact,  it  cannot 
experience  it  at  all.  An  irredeemable  government 
paper  money  is  subject  to  this  depreciation,  because 
when  issued  in  excess  of  the  wants  of  the  community, 
there  being  no  way  by  which  the  quantity  in  circulation 
can  be  diminished,  every  one  attempts  to  get  rid  of  it 
on  the  best  possible  terms,  precisely  as  with  commodi 
ties.  And  if  coin  exists  in  excess  of  its  profitable  use, 
it  must  be  exported,  or  lie  idle,  rendering  no  service,  pro 
ducing  no  income.  There  is  therefore  also  a  tendency, 
in  such  cases,  to  get  rid  of  coin  on  the  best  possible 
terms.  But  not  so  with  bank  notes  issued  by  sound 
institutions  or  solvent  individuals.  They  need  never 
be  kept  idle  on  hand,  lent  out  at  a  low  rate  of  interest, 
or  exchanged  on  onerous  terms  for  commodities  or  other 
property  ;  because,  being  all  issued  in  the  form  of  loans, 
the  persons  who  borrowed  them  of  the  banks,  as  soon 
as  they  find  they  can  no  longer  employ  them  profitably, 
many  always  return  them  to  the  banks,  and  thus  stop 
the  interest  they  pay  for  them.-'  There  cannot,  there- 

*  "  Try  then  the  bank  notes  by  the  same  tests,  and  see  if  the  principles 
which  determine  a  rise  of  prices,  in  the  case  of  a  more  abundant  influx  of 
the  precious  metals,  or  of  the  redundant  issues  of  a  conventional  currenc)7, 
can  have  the  least  application  to  them.  There  is  this  broad  and  clear  dis 
tinction  between  all  currencies  of  value  and  currencies  of  credit,  that  the 
quantity  of  the  former  is  in  no  degree  regulated  by  the  public  demand, 
whereas  the  quantity  of  the  latter  is  regulated  by  nothing  else.  The  gold 
which  is  once  smelted  and  converted  into  coin,  can  never  be  returned  again 
into  the  mine :  there  it  is,  a  permanent  and  irrevocable  addition  to  the 


136  MONEY. 

fore,  be  a  redundancy  of  bank  notes,  when  issued  by 
well-managed  institutions,  that  only  issue  them  on 
good  security/*  The  possibility  of  increasing  and  de- 
stock  of  money  in  the  world.  .  .  .  Still  more  decidedly  have  the  con 
ventional  issues  of  government  all  the  characteristics  of  a  forced  currency ; 
.  .  .  even  after  the  notes  have  become  depreciated,  the  law  compels  the 
private  creditor  to  accept  them  in  satisfaction  of  his  claims ;  and  the  gov 
ernment  having  no  better  money  to  offer,  the  only  alternative  left  to  its 
creditors  and  dependants  is  to  take  this  or  none.  Bank  notes,  on  the  other 
hand,  are  never  issued  but  on  the  demand  of  the  recipient  parties.  New 
gold  coin  and  new  conventional  notes  are  introduced  into  the  market  by 
being  made  the  medium  of  payments.  Bank  notes,  on  the  contrary,  are 
never  issued  but  on  loans,  and  an  equal  amount  of  notes  must  be  returned 
into  the  bank  whenever  the  loan  becomes  due.  Bank  notes  never,  there 
fore,  can  clog  the  market  by  their  redundance,  nor  afford  a  motive  to  any 
one  to  pay  them  away  at  a  reduced  value  in  order  to  get  rid  of  them.  The 
banker  lias  only  to  take  care  that  they  are  lent  on  sufficient  security,  and 
the  reflux  and  the  issue  will,  in  the  long  run,  always  balance  each  other. 
However  prone  individuals  may  be  to  abuse  at  times  the  facility  of  borrow 
ing,  no  merchant  can  ever  desire  to  keep  by  him  a  larger  sum  in  bank  notes 
than  is  indispensably  necessary  for  his  payments  ;  and  if  any  one  were  dis 
posed  to  indulge  in  so  unprofitable  a  fancy,  it  would  be  a  matter  of  not  the 
slightest  importance  to  any  other  than  himself,  for,  in  so  far  as  the  public 
are  concerned,  notes  which  are  not  in  use  are  the  same  as  if  they  were  not 
in  existence.  Those  notes  cannot  be  obtained  from  a  banker  but  by  pay 
ing  interest  for  the  use  of  them,  nor  can  they  be  obtained  at  all  but  for 
very  short  periods,  at  the  expiration  of  which  they  must  be  replaced.  Their 
circulation  must  always  be  strictly  limited  by  the  wants  of  those  who  have 
value  or  security  to  offer  for  them.  And  so  limited,  there  can  be  no  re 
dundance  ;  no  holder  of  them  can  ever  be  placed  in  the  same  predicament 
with  the  importers  of  a  double  supply  of  bullion,  or  the  recipients  of  a 
forced  issue  of  government  paper,  who  have  no  means  of  turning  these 
acquisitions  to  use  but  by  submitting  to  part  with  them  at  a  reduced  value." 
(Fullarton  on  the  Regulation  of  Currencies,  pp.  64,  65.) 

"  Mr.  Whitmore,  Governor  of  the  Bank  of  England,  on  his  examination 
before  the  Bullion  Committee  of  1810,  said:  'The  bank  notes  would  re 
vert  to  us  if  there  was  a  redundancy  in  circulation,  as  no  one  would  pay 
interest  for  a  bank  note  that  he  did  not  want  to  make  use  of.' "  (Tooke, 
History  of  Prices,  vol.  i,  p.  160.) 

*  "  It  may  rest  with  the  banker  to  issue,  but  it  is  the  public  which  cir- 


MONEY.  137 

creasing  each  day  the  volume  of  the  currency,  exactly 
in  accordance  with  the  amount  of  the  operations  which 
the  currency  facilitates,  instead  of  being  injurious,  is 
one  of  the  great  advantages  which  bank  notes  offer 
over  every  other  kind  of  money.  It  is  very  uncertain, 
and  very  difficult  to  ascertain,  what  is  the  limit  to  the 
profitable  employment  of  money.  Neither  legislators 
nor  bankers  should  attempt  to  fix  this  limit.  The 
main  duty  of  the  banker  is  to  see  that  he  loans  only 
on  undoubted  security,  and  for  such  periods  of  time 
as  he  feels  confident  will  not  inconvenience  himself. 
The  borrowers  are  the  only  proper  persons  to  decide 
what  employment  shall  be  made  of  the  money,  or  what 
may  be  the  profit  it  will  yield  them.  Money  applied 
to  consumption  may  be  injurious  to  the  community  ; 
but  money  applied  to  the  production,  importation,  or 

culatcs ;  and  without  the  concurrent  action  of  the  public,  neither  the  power 
nor  the  will  to  issue  can  avail.  Both  the  metropolitan  and  the  country 
circulations  are  subject  to  certain  periodical  floods  and  ebbs  from  regularly 
recurring  causes,  over  which  tfie  issuing  bodies  have  no  control,  and  which 
are  found  to  be  of  little  if  any  effect  beyond  the  immediate  range  of  the 
circumstances  in  which  they  originate.  It  is  well  known,  that  at  the  quar 
terly  periods,  when  the  public  dividends  fall  in  course  of  payment,  the  Bank 
of  England  adds  regularly  from  a  fifth  to  two  fifths  to  the  amount  of  its 
issues.  Has  any  one  ever  heard  of  an  instance  in  which  any  of  these  great 
periodical  expansions  of  the  bank  circulation  have,  in  any  sensible  degree, 
disturbed  markets  or  caused  a  general  rise  of  prices  ?  Nothing  of  the  kind. 
.  .  .  Such  is  the  elasticity  with  which  the  general  circulation  throws  off  the 
superfluous  load  which  encumbers  it,  that  the  surplus  notes  are  usually  re 
turned  into  the  bank,  and  the  currency  restored  to  its  average  level,  within 
a  few  weeks  after  the  recurrence  of  each  quarterly  period.  This  effect  is 
uniformly  produced  by  a  reduction  of  the  demand,  on  the  part  of  the  pub 
lic,  for  accommodations  from  the  bank  by  way  of  discount  or  loan, — a  re 
duction  which  follows,  with  immediate  and  striking  regularity,  every  such 
extraordinary  augmentation  of  the  bank  issues."  (Fullarton  on  the  Regu 
lation  of  Currencies,  p.  86.) 


138  MONEY. 

exchange  of  commodities  can  never  greatly  injure  the 
community,  whatever  be  the  result  to  the  individuals 
making  these  operations  ;  for  increased  production  di 
minishes  prices — low  prices  diminish  production — di 
minished  production  increases  prices — higher  prices 
stimulate  production.  Thus  we  have  constantly  action 
and  reaction — harmony  resulting  from  the  antagonism 
of  forces,  which  appears  to  be  the  universal  system  that 
controls  so  harmoniously  all  created  things. 

But  if  limiting  the  issues  of  paper  currency  really 
increased  its  value,  how  injurious  and  how  unjust  would 
be  such  a  measure  as  the  limitation  of  the  issues  of  the 
Bank  of  England  to  14  millions  !  Every  day  increases 
the  population  of  all  countries,  whilst  the  enormous 
development  of  industry  and  wealth  in  consequence  of 
the  invention  of  machinery,  the  greater  and  greater  di 
vision  of  labor,  and  the  increasing  intelligence  of  the 
laborers,  increases  production  and  exchanges  still  more 
rapidly  than  population.  It  is  evident  that  an  amount 
of  -currency  amply  sufficient  for  the  exchanges  of  1844, 
may  be  totally  insufficient  to  effect  the  exchanges  of 
1864  ;  and,  therefore,  the  limitation  of  the  issues  of  bank 
notes,  if  the  theory  that  this  increases  their  value  were 
correct,  would  each  day  increase  the  value  of  money,  and 
reduce  the  value  of  commodities  and  services,  although 
no  change  should  take  place  in  the  relative  proportion  be 
tween  the  supply  and  the  demand  ;  in  fact,  even  if  the 
supply  had  moderately  diminished  in  proportion  to  the 
demand.  Can  it  be  that  man  can  thus  counteract  a  great 
beneficial  natural  law?  No,  thank  God,  this  cannot  be 
done,  for  otherwise  we  should  constantly  see  the  masses 
still  more  frequently  deprived  than  they  are  now  of  the 


MONEY.  139 

results  of  their  labor,  at  the  will,  and  for  the  benefit 
of  the  intriguing  few  who  succeed  in  obtaining  pos 
session  of  the  government,  i.  c.  of  the  power  to  enact 
human  laws.  The  volume  of  the  currency  has  no  dura 
ble  effect  on  prices.  It  would,  if  all  things  could  only 
be  exchanged  by  means  of  money  ;  but  as  that  is  not 
the  case,  the  currency  is  only  an  instrument  that  facili 
tates  exchanges,  but  does  not  control  prices.  Mr.  Win. 
Newmarch,  in  an  address  at  Manchester  in  September, 
1861,  said  :  "It  has  been  proved  by  evidence  so  exten 
sive  and  various  that  we  may  well  claim  for  it  the  force 
of  demonstration, -that  fluctuations  in  the  amount  of  a 
paper  circulation  strictly  convertible  into  coin,  does  not 
govern  prices  at  all,  but  that  prices  are  governed  by 
supply  and  demand,  and  by  operations  of  capital  and 
credit ;  that  bank  notes  are  no  more  than  the  small 
change  of  the  ledger,  and  that  the  phenomena  which 
are  really  worth  attention  are  not  infinitesimal  fluctua 
tions  in  the  amount  of  bank  notes,  but  changes  in  the 
rate  of'interest."  * 

But,  unfortunately,  although  the  theory  that  limiting 
the  quantity  of  the  currency  increases  its  value  is  not 
true  in  principle,  it  is  true  in  some  exceptional  cases  ; 
and  the  theory,  as  long  as  admitted  and. acted  on,  does 
immense  injury  to  the  best  interests  of  the  community  ; 
for,  whenever  the  community  obtain  a  certain  supply 
of  currency  and  adapt  their  operations  to  this  amount,  the 
contraction  that  subsequently  takes  place  either  in  con 
sequence  of  legal  restrictions  to  bank  issues,  like  in  the 
case  of  the  Bank  of  England,  or  in  consequence  of  the 
ignorance  of  the  true  laws  governing  paper  money  on  the 

*  Journal  of  the  Statistical  Society  of  London,  December,  1861. 


140  MONEY. 

part  of  the  issuers,  as  is  universally  the  case  in  the 
United  States,  is  perfectly  ruinous  to  the  commercial 
and  industrial  interests,  because  the  deprivation  of  the 
indispensable  means  of  exchanging  commodities  and 
meeting  engagements,  invariably  creates  panics  ;  leads 
to  forced  sales  of  property  at  ruinous  rates  ;  destroys 
credit,  and  ends  by  arresting  and  disorganizing  indus 
try  for  a  longer  or  shorter  period  of  time.  Such  a  con 
traction  of  the  currency,  and  the  subsequent  rise  of 
prices  which  follows  after  confidence  is  reestablished 
and  the  currency  once  more  increased  to  an  amount 
sufficient  for  the  exchanges  then  taking  place,  give  a 
certain  appearance  of  truth  to  the  theory  that  the  volume 
of  the  currency  regulates  prices.  But  it  is  evident  that 
these  incessant  expansions  and  contractions  of  the  cur 
rency,  without  regard  to  the  wants  of  the  community, 
and  their  injurious  effects,  are  not  the  consequences  of 
the  use  of  paper  money,  but  solely  of  its  abuse,  of  the 
ignorance  of  those  who  control  the  issues  of  paper  money. 
If  an  instrument  of  any  kind  be  beneficial,  how  can  it 
be  injurious  to  increase  the  number  in  use,  as  long  as 
those  who  are  to  use  them  ask  and  pay  for  them  ? 
Suppose  it  were  asserted  that  increasing  the  number  of 
ploughs  decreased  their  value,  and  that,  therefore,  to 
protect  the  interests  of  the  community,  it  was  necessary 
to  limit  the  number  of  ploughs  in  use.  Could  this  be 
beneficial  to  any  one  but  the  present  holders  of  ploughs, 
who  thereby  would  be  benefited  by  the  increase  of  their 
value  ?  Exactly  so  with  paper  money.  By  making  those 
who  obtain  paper  money  from  the  issuers,  give  security  for 
its  return  and  pay  interest  for  its  use  until  returned,  the 
demand  for  paper  money  is  certain  to  be  limited  at  all 


MONEY.  141 

times  to  the  amount  really  useful  to  the  borrowers.  And 
if  any  given  amount  be  useful  to  the  commercial  and  in 
dustrial  interests,  it  cannot  be  injurious  to  any  portion 
of  humanity  ;  for  it  is  now  clearly  established  by  political 
economy,  that  under  perfect  liberty,  anything  really 
beneficial  to  a  portion,  is  beneficial  to  the  whole  of 
humanity.  The  contrary  doctrine  arises,  invariably, 
from  looking  only  at  the  first  effects,  and  omitting  all 
consideration  of  the  subsequent,  ulterior,  effects  of  any 
measure. 

It  is  generally  supposed  that  the  redemption  of 
paper  issues  in  specie  is  the  best  guarantee  against  over 
issues.  This  is  what  is  called  in  England  "  the  bank 
ing  principle,"  *  which  supposes  that  this  is  necessary 
to  maintain  the  value  of  a  paper  currency  on  a  par  with 
the  currency  of  other  nations  with  which  commodities 
are  exchanged.  It  is  supposed  that  whenever  the 
paper  issues  become  redundant  they  reduce  the  value  of 
the  currency,  which  leads  to  an  exportation  of  the  pre 
cious  metals  from  the  country  whose  circulation  is 
excessive,  and  this  then  leads  to  the  presentation  of 
bank  notes  to  obtain  specie  to  meet  the  export  demand, 
until  the  equilibrium  of  both  volume  and  value  be  re 
established.  Here  we  have  again  the  theory  that  every 
increase  in  the  volume  of  the  currency  decreases  its 
value.  The  true  and  only  advantage  of  the  converti- 

*  "  That  the  purposes  of  a  mixed  circulation  of  coin  and  paper  were 
sufficiently  answered,  as  long  as  the  coin  was  perfect  and  the  paper  con 
stantly  convertible  into  coin,  and  that  the  only  evils  to  be  guarded  against 
by  regulation  were  those  attending  suspension  of  payment  and  insolvency 
of  the  banks.  This  is  what  is  understood  in  general  terms  as  the  '  bank 
ing  principle,'  and  is  that  upon  which  our  system  of  currency  is  constructed 
and  conducted."  (Tooke,  History  of  Prices,  vol.  iii,  p.  167.) 


142  MONEY. 

bility  of  paper  money  into  coin,  on  demand,  is  that,  as 
the  banks,  wherever  they  exist,  become  the  reservoirs 
of  the  specie  reserves  of  the  entire  community,  as  long 
as  the  precious  metals  are  considered  the  only  true  and 
desirable  wealth,  and  paper  money  only  performs  the 
functions  of  money  within  limited  districts,  the  forced 
convertibility  becomes  necessary  as  means  of  overcoming 
the  dislike  of  the  banks  to  part  with  the  coveted 
metals  when  they  become  indispensable  to  commerce 
as  means  of  supplying  some  want  or  desire  beyond 
the  means  offered  by  the  exports  of  commodities 
for  the  moment.  Were  bank  notes  universally  ac 
cepted  as  money,  and  the  precious  metals  used  simply 
as  commodities,  the  exports  of  gold  and  silver  would  be 
seen  with  as  great  satisfaction  as  the  exports  of  all  other 
commodities  by  means  of  which  we  obtain,  in  return, 
the  objects  of  our  wants  or  desires.  Under  our  present 
system,  the  moment  commerce  requires  specie  as  means 
of  supplying  the  wants  or  desires  of  the  community, 
instead  of  loaning  it  against  ample  security,  precisely  as 
they  do  their  notes,  the  banks  immediately  call  in  the 
loans  and  notes  indispensable  to  the  operations  of  the 
community, *  merely  with  a  view  to  arrest  the  exports 
of  coin,  although  the  only  utility  of  coin  is  to  meet  pre 
cisely  such  emergencies.  The  community  are  thus  not 
only  attempted  to  be  deprived  of  the  use  of  the  precious 
metals  brought  into  the  country  solely  by  means  of  their 
industry  and  intelligence,  but  are  further  deprived  of  the 

*  "  Bankers,  though  they  cannot  increase  their  issues  above  the  level 
prescribed  by  prices,  have  it  always  in  their  power  to  lower  them  to  any 
given  point,  or  to  withdraw  them,  if  they  think  fit,  altogether."  (Fullarton 
on  the  Regulation  of  Currencies,  p.  107.) 


MONEY.  143 

instruments  indispensable  to  the  local  exchanges  of 
commodities  and  services.  *  The  invariable  result  is  an 
immense  momentary  reduction,  if  not  a  total  cessation 
of  the  production  of  commodities,  although  the  com 
munity  are  in  as  great  need  of  them  as  ever,  and  possess 
the  same  ample  means  as  ever  to  remunerate  the  pro 
ducers  by  other  services  useful  to  the  latter. 

Nothing  that  will  arrest  the  exportations  of  the 
products  of  a  country,  while  there  is  a  foreign  demand 
for  them,  can  produce  a  rise  of  prices,  as  long  as  the 
products  exist  in  excess  of  the  local  wants.  Whenever, 
from  any  cause,  the  foreign  demand  ceases  whilst  stocks 
are  in  excess  of  the  local  demand,  prices  will  fall  until 
the  foreign  demand  recommences  or  the  production  is 
diminished,  because  merchants  rarely  purchase  commod 
ities  to  hold  them  for  future  wants,  but  almost  always 
to  supply  immediate  wants.  Commerce  is  not  specula 
tion — it  is  the  constant  supply  of  immediate  wants.  "  It 
will  be  found  that  in  almost  every  instance  of  a  drain 
of  bullion,  the  drain  does  not  commence  until  after  a 
considerable  foreign  debt  has  been  already  created,  and 
all  available  means  of  discharging  it  through  the  ordinary 
course  of  traffic  have  been  exhausted."  f  "  The  scarcity 

"  When  we  come  to  a  drain  of  gold  to  meet  an  unavoidable  want, 
there  must  be  some  means  of  avoiding  measures  by  which  the  commerce  of 
the  country  will  be  dislocated.  That  commerce  is  carried  on  almost  en 
tirely  on  a  system  of  credit.  If  you  drive  it  to  a  ready  money  system,  you 
at  once  paralyze  it  in  the  manufacturing  districts.  .  .  .  How  can  the 
mercantile  interests  carry  on  the  export  trade,  which  must  be  conducted  on 
credit,  when  all  accommodation  is  refused  them  ?  The  country  has  export 
ed  £700,000  of  gold,  and  the  effect  of  this  export  has  been  to  destroy 
property  to  the  extent  of  one  hundred  millions."  (Speech  of  Thomas 
Baring,  Esq.,  in  the  House  of  Commons,  10th  May,  1847,  on  the  crisis  of 
1847.  Alison's  History  of  Europe,  vol.  viii,  p.  101,  American  edition.) 
t  Fullarton  on  the  Regulation  of  Currencies,  p.  130. 


144  MONEY. 

and  (consequent)  dearness  of  native  productions  is  an 
infallible  cause  of  the  export  of  specie  from  a  country  ; 
and  an  already  existing  abundant  supply  of  foreign  pro 
ductions  of  all  sorts  is  a  certain  causa  of  the  import  of 
specie  into  a  country.  On  the  contrary,  when  native 
productions  are  cheap  and  abundant,  it  will  cause  an 
importation  of  bullion  ;  and  when  foreign  productions 
are  scarce  and  dear,  it  will  cause  an  export  of  bullion."  * 
This  is  just  as  true  of  a  country  where  a  forced  irre 
deemable  paper  money  circulates,  as  of  one  whose  cur 
rency  is  entirely  metallic,  or  partly  metallic  and  partly 
bank  notes  convertible  into  coin  on  demand.  Wherever 
a  forced  paper  money  circulates,  every  depreciation  of 
the  paper  money  is  accompained  by  a  corresponding  rise 
in  the  rates  of  the  foreign  exchanges.  This  rise  in  the 
foreign  exchanges  compensates,  to  the  foreigners,  the 
rise  in  the  price  of  commodities,  which,  therefore,  cost , 
no  more  to  them  than  when  prices  were  lower  in  a  sound 
currency.  Exports  thus  continue  as  before  the  depre 
ciation  of  the  currency — in  fact,  with  a  depreciated 
currency,  the  exports  often  increase  temporarily,  in 
consequence  of  the  rise  of  the  foreign  exchanges,  as  this 
becomes  a  great  temptation  to  export  commodities  in 
the  hope  of  avoiding  a  portion  of  the  rise  in  the  ex 
changes.  Commerce  never  moves  the  precious  metals 
if  it  can  be  a  voided,  because  operations  in  them  offer  little 
or  no  compensation  for  the  trouble  and  risk  they 
occasion,  f 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  i,  p.  304. 

f  "  The  cause  of  bullion  being  imported  is  either  that  the  price  of  goods 
is  so  low  in  England,  and  so  high  in  the  foreign  markets,  as  to  tempt 
foreigners  to  send,  here  to  buy  goods,  or  that  the  price  of  goods  is  so  high 


MONEY.  145 

Drains  of  specie  for  export  are  invariably  caused  by 
purchases  abroad  of  a  greater  amount  of  commodities 
than  the  value  of  the  commodities  exported  at  the  mo 
ment.  A  drain  of  specie  can  never  be  of  long  duration, 
because  commerce  maintains  a  constant  equilibrium  be 
tween  all  nations  both  as  to  the  value  and  the  supply 
of  all  things..  If  the  purchases  abroad  have  been  of 
articles  of  necessity,  like  food,  to  supply  the  deficit  of 
bad  harvests,  they  must  continue  as  lung  as  the  wants 
of  the  community  are  unsatisfied  ;  but  bad  harvests 
produce  high  prices  for  food,  and  low  prices  for  every 
thing  else,  because  the  additional  amount  that  has  to 
be  expended  for  food  must  be  withdrawn  from  some 
other  consumption  formerly  indulged  in,  and  low  prices 
for  all  articles  but  food  soon  attract  a  foreign  demand 
which  arrests  the  drain  of  specie.  If  the  purchases 
abroad  have  been  of  articles  of  luxury,  which  can  be 
easily  dispensed  with,  there  must  be  an  over  importation 
when  the  liquidation  of  the  purchases  requires  an  expor 
tation  of  coin,  and  this  soon  corrects  itself  by  the  losses 
invariably  entailed  upon  the  importers  by  importations 
beyond  the  wants  or  means  of  the  community.  It  must 
never  be  forgotten  that  every  one  who  parts  with  coin, 

in  the  foreign  market  and  so  low  in  England,  that  nothing  but  specie  can 
be  sent  in  payment  of  goods  exported  from  England. 

"  The  cause  of  bullion  being  exported  from  England  is  that  there  is 
some  givat  and  pressing  demand  for  some  article  in  this  country,  and  other 
commodities  are  so  scarce  and  dear  that  they  cannot  be  exported  with  a 
profit,  or  that  the  article  is  required  in  such  quantities  that  the  foreigner  can 
not  consume  our  goods  (which  we  should  prefer  to  send  in  payment)  fast 
enough,  and  so  specie  must  be  sent,  and  the  greater  the  difference  in  price 
the  greater  will  be  the  drain  of  bullion  ;  or  that  other  markets  are  already 
overstocked  with  our  productions,  which  are  depressed  below  their  market 
value  there  "  (Macleod,  Theory  and  Practice  of  Banking,  vol.  i,  p.  309.) 

7 


146  MONET. 

does  so  to  obtain,  in  exchange,  something  he  prefers  to 
coin.  Now  should  the  exchange  of  coin  for  commodi 
ties,  by  individuals,  ever  be  prevented  ?  If  not,  why 
attempt  to  stop  the  exports  of  coin,  which  only  represent 
individual  exchanges  of  coin  for  foreign  commodities  ?  * 
All  efforts  to  arrest  the  exportation  of  coin  are  simply 
an  attempt  to  enforce  the  theory  that  the  only  true  and 
desirable  wealth  is  gold  and  silver.  Is  it  not  safe  and 
proper  to  allow  every  owner  of  coin  to  dispose  of  it  as 
he  may  judge  most  conducive  to  his  well  being  ?  He 
obtained  the  coin  by  giving  something,  in  exchange,  of 
equal  value.  When  he  thus  acquires  it,  is  it  not  his 
inherent  right  to  do  whatever  he  pleases  with  it  ?  Self- 
interest  will  ever  prevent  him  from  parting  with  it  ex 
cept  in  exchange  for  something  which  he  prefers  to  coin 
— if  he  is  benefited  by  the  exchange,  the  nation  cannot 
be  injured,  because  the  well  being  of  a  nation  depends 
on  the  well  being  of  the  individuals  composing  the  na 
tion. 

There  is  nothing  so  absurd  and  groundless  as  the 
fear  of  an  inadequate  supply  of  the  precious  metals  as 
long  as  commerce  is  left  unfettered  by  legislation.  a  Gold 
is  easily  transported  from  one  country  to  another.  ... 
Owing  to  the  great  facilities  of  communication  in  modern 
times,  a  very  slight  discrepancy  of  value  is  instantly 
corrected  by  a  stream  of  exportation.  ...  A  mili 
tary  emergency,  compelling  a  sudden  export  to  an  army 
abroad,  or  very  sudden  and  extensive  orders  for  mercan- 

*  "I  really  know  not  why  such  enormous  stores  of  coin  are  to  be 
hoarded  up  at  so  vast  an  expense,  if  they  are  to  be  at  all  times  Inexorably 
withheld  from  the  public,  whatever  be  the  urgency  of  the  need,'7  (Fullar- 
ton  on  the  Regulation  of  Currencies,  p.  150.) 


MONEY.  147 

tile  purchases  in  foreign  countries,  might  for  the  mo 
ment  produce  a  considerable  diminution  of  the  coin  in 
a  nation  which  held  no  reserves  in  bankers'  hands ;  but 
the  vacuum  and  the  inconvenience  would  be  of  brief 
duration.     Gold  would  flow  in  on  every  side,  so  long  as 
people    had    commodities   wherewith  to  buy  it.     The 
horror  which  the  theorists  inculcate  of  a  deficiency  of 
gold  is  simply  preposterous  ;  there  is  probably  no  other 
commodity,    the    scarcity  of  which  would  produce  so 
little  inconvenience,  or  would  be  so.  rapidly  remedied. 
A  scarcity  of  cotton  would,   indeed,  be  a  subject  for 
grave  alarm  ;  for  how  could  it  be  supplied  ?     But  a  de 
ficiency  of  gold  would  at  once  cause  it  to  pour  in  from 
the  reservoir  of  the  whole  world  ;    bankers  who    had 
pledged  themselves  to  pay  gold,   and  merchants  who 
owe  debts  abroad,  being  the  only  persons  who  would  in 
cur  any  real  loss  ;  and  that  would,  at  the  utmost,  be 
trifling.     A  small  premium  on  the  value  of  the  metal 
would  bring  in  any  supply  that  could  be  wanted.     In 
truth,  this  horror  of  a  scarcity  of  this  particular  article 
above  that  of  any  other,  is  a  mere  relic  of  the  unscien 
tific  confusion  'of  a  short  supply  of  a  commodity  luith 
the  inability  of  an  indelted  banker  to  repay  his  cred 
itors  the  capital  which  he  has  lost.    ...    A  premium 
of  sixpence  a  sovereign,  or  at  the  most  a  shilling,  would 
draw  torrents  of  gold  upon  England  from  all  the  world, 
and  would  restore  the  whole  of  the  sixteen  millions  of 
gold  at  the  bank,  if  it  had  all  taken  wing,  for  some 
£400,000  or  £800,000  at  most.     Why,  reckoning  in 
terest  at  five  per  cent.,  it  costs  the  nation  the  larger  of 
these  sums  annually  to  keep  cellars  at  the  bank  full  of 
gold.  ...     Of  all  ivants,  there  is  none  which  is  so  easily 


148  MONEY. 

and  so  certainly  supplied  as  gold.  .  .  .  India  and 
China  obtain  as  much  silver  as  they  can  pay  for  with 
their  products.  Is  England,  England  rich  in  every  store 
of  manufactured  and  universally  desired  wealth,  unable 
to  do  as  much  ?  Has  Adam  Smith  taught  in  vain  ? 
and  is  the  absurd  doctrine  of  a  favorable  balance  of 
trade,  of  the  flowing  in  of  a  redundant  and  useless  com 
modity,  not  yet  exploded  ?  " 

"  But  how,  then,  is  the  existence  of  this  strange 
delusion  about  gold  to  be  explained  ?  Partly  by  the 
old  mercantile  theory,  of  which  it  is  a  remnant ;  partly 
by  ignorance  of  the  science  of  currency  ;  but  most  of 
all  by  the  universal  and  natural  feeling  of  the  banking 
trade,  especially  of  the  Bank  of  England.  It  is  a  seri 
ous  part  of  their  business  to  undertake  to  provide  gold 
on  demand.  Every  banker  in  London,  including  the 
Bank  of  England,  is  bound  by  law  to  repay  all  his  lia 
bilities,  whether  of  notes  or  deposits,  in  gold  on  demand. 
The  business,  therefore,  of  providing  gold  when  wanted, 
falls  on  them  ;  it  is  a  duty  annexed  to  the  profit  of  their 
calling.  No  wonder,  therefore,  that  they  are  always 
nervous  as  to  having  gold  enough  to  meet  all  possible 
demands  on  them  ;  no  wonder  that  they  preach  that 
vast  heaps  of  stored-up  gold,  it  matters  not  how  useless, 
constitute  a  very  satisfactory  state  of  things.  .  .  . 
But  it  is  a  wonder  that  political  economists  should  have 
chosen  to  identify  the  banking  interest  of  the  Bank  of 
England  with  the  interest  of  the  whole  community  ; 
that  they  should  have  persuaded  themselves  that  there 
was  any  greater  harm  in  dear  gold  than  in  dear  corn, 
dear  cotton,  or  dear  sugar." 

"  The  terror  felt  for  drains  of  gold  and  low  (high) 


MONEY.  149 

exchanges  is  almost  too  absurd  to  be  seriously  dealt 
with.  They  signify  only  that  gold  is  being  exported  ; 
and  why  not  rejoice  over  its  export  as  much  as  over  that 
of  Manchester  bales  ?  Gold  is  sent  out  only  to  bring 
in  a  more  desirable  commodity — a  serviceable,  in  ex 
change  for  an  unserviceable  article.  A  cargo  of  cotton 
or  wool  is,  as  a  general  rule,  an  arrival  far  more  deserv 
ing  of  welcome  than  one  of  gold  ;  and  city  articles  of 
the  press  would  show  more  understanding  of  the  mat 
ter,  if,  instead  of  enumerating  the  ounces  which  come 
from  Australia  to  England — for  the  most  part,  too,  only 
in  transit  to  some  other  country — they  would  publish 
the  supplies  which  are  brought  in  of  raw  material  for 
the  great  workshops  of  English  industry.  If  these 
supplies  were  to  fail,  great  indeed  would  be  the  ruin  ; 
but,  if  gold  were  scarce  for  a  while,  what  would  be  the 
harm  ?  .  .  .  Scarce  gold  must  be  paid  for  at  a  high 
rate.  Granted  ;  but  the  question  ultimately  is  this  : 
whether  it  would  cost  more  to  buy  it  at  a  dearer  rate 
occasionally  when  scarce,  or  to  invest  large  portions  of 
capital  uselessly,  in  keeping  up  expensive  accumulations 
of  it,  for  the  sole  purpose  of  preventing  it  from  ever 
being  scarce."  * 

The  precious  metals,  being  universally  accepted  in 
exchange  for  commodities  and  services,  imperceptibly 
became  the  representatives  of  commodities  and  services, 
by  which  they  are  constantly  redeemed,  and  thus  main 
tained  current  among  all  those  who  desire  commodities 
and  services,  which  means  humanity  at  large.  Every 
man  seeks  money  because  it  has  become,  like  Aladdin's 
lamp,  the  efficient  means  of  obtaining,  at  any  moment, 

*  What  is  Money?    (North  British  Review,  November,  1861.) 


150  MONEY. 

everything  he  may  desire.*  The  ignoring  of  this  trans 
formation  of  the  precious  metals  from  commodities  into 
counters,  into  representatives  of,  or  orders  on,  all  com 
modities  and  services — the  belief  that  gold  and  silver 
still  circulate  as  money  on  account  of  their  intrinsic 
value,  of  the  value  in  themselves,  as  it  is  sometimes 
called,  leads  to  the  doctrine  called  in  England  "the 
currency  principle  :"  that  paper  money  performs  suc 
cessfully  the  functions  of  money  solely  because  it  is,  or 
should  be,  the  representative  of  coin  actually  in  the 
vaults  of  the  institutions  or  individuals  that  issue  it. 
The  ultra,  logical  partisans  of  this  doctrine  naturally 
insist  that  all  issues  of  paper  that  do  not  represent  an 
equivalent  amount  of  coin,  idle  in  the  vaults  of  the 
issuers,  ready  to  redeem  the  paper  issues,  are  injurious, 
because  they  depreciate  the  value  of  the  currency  by 
increasing  its  volume.  Here  we  have,  ooce  more,  the 
doctrine  that  every  addition  to  the  existing  stock  of 
money  diminishes  its  exchangeable  value.  But  neither 
the  volume  of  the  precious  metals,  nor  the  volume  of 
the  mixed  currency  of  coin  and  paper  money  issued  by 
banks  to  whom  it  can  be  returned  when  no  longer 
needed,  ever  has  been,  or  ever  will  be,  the  true  measure 
of  value  of  all  things  produced  by  the  labor  of  man, 
because  currency  never  has  been,  and  certainly,  never 
will  be  hereafter,  the  sole  means  of  obtaining  those 
things.  If  banks  at  the  present  day,  like  the  old  banks 
of  Amsterdam  and  of  Hamburgh,  were  merely  the  de- 

*  The  alchemists  of  old  sought  to  transmute  commodities  into  gold. 
"We,  more  intelligent  in  regard  to  the  true  services  that  can  be  obtained 
from  things,  constantly  transform  the  precious  metals  into  commodities  and 
services. 


MONEY.  151 

positories,  the  safekeepers,  of  coin,  for  the  benefit  of 
the  holders  of  the  notes  issued  to  an  equivalent  amount, 
they  would  render  but  very  trifling  services  to  human 
ity  ;  services  not  worth  the  cost  of  the  machinery  re 
quired  to  render  them.  It  is  because  the  modern  banks 
replace  successfully  coin  by  paper,  as  an  instrument 
for  effecting  exchanges — because  they  replace  capital, 
which  it  requires  laborious  efforts  to  produce,  by  credit, 
the  active  and  obedient  offspring  of  intelligence  and 
probity — physical  efforts  by  mental  efforts,  the  true 
process  of  all  human  progress — that  they  have  been 
the  source  of  the  great  benefits  man  has  already  derived 
from  them.  Some  men,  fortunately  declining  in  num 
ber  each  day,  believe  that  the  introduction  of  machin 
ery  and  of  steam  has  been  injurious  to  humanity 
because  they  diminish  the  labor  required  to  produce 
certain  results  ;  and  that,  as  labor  is  the  true  source  of 
wealth,  it  follows  that  every  diminution  in  the  neces 
sary  employment  of  labor  is  injurious  to  society  at 
large.  These  men  forget  that  labor  is  necessary  and 
desirable  only  on  account  of  the  results  it  produces  ; 
that  if  the  desired  results  can  be  obtained  with  lees 
effort  and  in  greater  profusion  by  the  gratuitous  natural 
forces  placed  at  our  disposal  by  the  beneficent  Giver 
of  all  things,  it  liberates  labor  from  its  former  efforts, 
which  then  become  unnecessary,  without  diminishing 
man's  enjoyments,  and  permits  him  to  secure  new  en 
joyments  and  new  sources  of  future  progress  by  the 
application  of  the  liberated  labor  to  new  occupations. 
Exactly  so  with  money.  If  we  are  liberated  from  the 
necessity  of  using  the  former  expensive  instruments  of 
exchanges,  in  consequence  of  their  being  replaced  by  a 
gratuitous  instrument,  it  liberates  labor  and  capital, 


152  MONEY. 

which  can  then  be  turned  to  good  account  in  other 
pursuits  that  will  add  to  our  present  enjoyments  and 
future  progress. 

Mr.  Huskisson  said,  in  1810  :  "It  is  of  the  essence 
of  money  to  possess  intrinsic  value.  Paper  currency 
has  obviously  no  intrinsic  value  :  a  promissory  note, 
under  whatever  form  or  from  whatever  source  it  may 
come,  represents  value.  It  does  so,  inasmuch  as  it  is 
an  undertaking  to  pay  in  money  the  sum  for  which  it  is 
issued.  The  money  or  coin  of  a  country  is  so  much  of 
its  capital.  Paper  currency  is  no  portion  of  the  capital 
of  a  country.  It  is  so  much  circulating  credit.  .  .  . 
Both  money,  however,  and  paper  promissory  of  money, 
are  common  measures  and  representatives  of  the  value 
of  all  commodities.  But  money  alone  is  the  universal 
equivalent.  Paper  currency  is  the  representative  of 
that  money."*  We  have  here,  in  a  few  words,  the  prin 
cipal  errors  of  the  ultra  bullionists,  who  imagined  the 
"  currency  principle  "  and  the  act  of  1844.  "Money 
(coin)  is  capital/'  We  think  it  is  not  capital,  but  only 
the  representative  of  capital,  as  long  as  used  as  money. 
To  perform  the  functions  of  capital,  and  become  sub 
ject  to  the  laws  regulating  capital,  it  must  be  demone 
tized  by  being  melted.  "  Money  must  possess  intrinsic 
value."  We  think  we  have  shown  that  this  is  entirely 
unnecessary.  "  Paper  money  does  not  possess  intrinsic 
value,  therefore  it  cannot  perform  the  functions  of 
money/'  Experience  shows  conclusively  it  can,  most 
successfully,  perform  the  functions  of  money.  No  peo 
ple  that  have  once  used  paper  money  have  evor  long 
given  up  its  use.  "  Paper  money  circulates  as  money 

*  The  Question  concerning  the  Depreciation  of  our  Currency  stated 
and  examined — quoted  by  Tooke,  History  of  Prices,  vol.  vi,  p.  618. 


MONEY.  153 

because  it  is  a  promise  to  pay  coin,  and,  therefore, 
represents  coin/'  We  say  paper  money  circulates,  not 
because  it  represents  com,  but  because  it  represents 
commodities  and  services.  Paper  money  is  redeemed, 
not  in  coin,  but  by  payments  to  the  issuers  in  liquida 
tion  of  loans  of  paper  money.  It  is  redeemed  by  com 
modities  and  services,  in  exchange  for  which  the  bank 
notes  are  transferred,  by  those  who  receive  them  from 
the  banks,  to  those  who  have  to  pay  to  the  banks. 
Paper  money  cannot  be  redeemed  in  coin  if  it  be  issued 
in  excess  of  the  coin  in  the  hands  of  the  issuers.* 
"  Money  is  the  equivalent  of  all  things."  No,  it  is  not ; 
it  is  a  mere  representative  of  all  other  things.  Hus- 
kisson  claims  that  paper  money  is  the  representative  of 
coin.  If  that  be  correct,  it  must  be  because  paper 
money  is  eventually  to  be  redeemed  in  coin.  Then  why 
is  not  money  of  every  kind  the  representative  of  com 
modities  and  services,  since  these  must  constantly  re 
deem  it  to  give  currency  to  money  of  any  kind,  for 
money  is  only  used  as  means  of  obtaining  all  things 
useful  or  desired.  Bullionists,  however,  will  not  admit 
that  money  represents  commodities  and  services,  be 
cause  that  admission  overthrows  all  their  theories. 
Huskisson  admits  that  paper  money  is  a  measure  of 
value,  and  he  states  very  correctly  that  it  is  circulating 
credit.  Bank  notes  are  undoubtedly  credit  in  its  most 
convenient  form. 

*  "  Bank  notes  are  regarded  by  some  as  representatives  of  specie.  But 
for  every  silver  dollar  they  have  in  their  vaults,  some  of  the  banks  have 
two  paper  dollars  in  circulation,  some  three,  some  five,  some  eight,  and 
some  thirteen.  Bank  notes  cannot  represent  that  which  the  banks  have 
not,  and  which  is  not  in  the  country."  (Gouge  on  Banking,  p.  20.) 

7* 


CHAPTER  X. 

PAPER  MONEY,  as  yet,  is  far  from  being  the  perfect 
money  it  will,  some  day,  become.  Up  to  the  present 
time  it  is  far  too  much  controlled  and  hampered  by 
legislation,  and  the  natural  laws  that  govern  it  so  per 
fectly  are  not  yet  sufficiently  known  to  permit  us  to 
derive  all  the  benefits  its  use  will,  eventually,  confer. 
Notwithstanding  all  the  advantages  offered  by  paper 
money,  it  performs,  as  yet,  but  a  portion  of  the  re 
quired  functions  of  money.  It  only  aids  the  exchanges 
of  commodities  and  services  within  restricted  limits. 
For  exchanges  between  distant  points  the  precious 
metals  are  still  greatly  used.  The  reason  of  this  is  that 
paper  money  does  not  yet  inspire  universal  confidence, 
without  which  nothing  can  properly  perform  the  func 
tions  of  money,  and  the  issues  of  each  institution  are 
only  known  in  a  restricted  circle,  in  the  more  or  less 
immediate  vicinity  of  the  locality  of  the  institutions 
that  issue  it.  But  each  day  rapidly  increases  the  gen 
eral  intelligence,  the  intercourse  between  nations,  and, 
consequently,  the  universal  knowledge  of  the  institu 
tions  of  all  countries.  Steam,  railroads,  and  the  electric 
telegraph,  not  only  supply  our  wants,  but  annihilate 


MONEY.  3  55 

ignorance,  distances,  and  time.  We  are  rapidly  pro 
gressing  toward  the  moment  when  paper  money  will 
become  a  perfect  money  in  every  respect.  It  will  then 
become  the  universal  instrument  for  effecting  the  ex 
changes  of  the  entire  globe.  The  precious  metals  will 
then  be  abandoned  as  money,  and  left  exclusively  to 
the  arts  ;  and  history  will  speak  of  the  times  when 
they  were  used  as  money  precisely  as  we  now  do  of  the 
dark  ages,  when  cattle  and  iron  were  used  for  that  pur 
pose.  Universal  intelligence  and  universal  probity,  the 
conviction  that  deception,  dishonesty,  and  idleness  are 
unprofitable,  are  required,  above  all,  to  attain  this  de 
sirable  result ;  and  this,  to  pessimists,  will  appear  as 
impossible  as  to  replace  the  precious  metals  by  paper 
money.  But  when  we  contrast  the  present  with  the 
past,  can  we  doubt  the  future  moral  as  well  as  physical 
progress  of  humanity  ?  Dr.  Bowring  stated  at  a  meet 
ing  of  the  Society  of  Political  Economy,  of  Paris,  that 
in  the  county  in  which  he  was  born,  in  Scotland,  two 
out  of  three  prisons  that  existed  were  no  longer  used, 
theft  having  become  an  unprofitable  occupation.  Already 
the  notes  of  the  Bank  of  England  can  be  disposed  of, 
more  or  less  readily,  throughout  most  civilized  coun 
tries,  in  consequence  of  the  large  capital  and  well- 
established  and  well-deserved  confidence  in  the  prudent 
and  intelligent  management  of  that  institution.  And 
yet  it  is  far,  very  far,  from  being  a  model  bank,  owing 
to  its  close  connection  with  the  state,  to  its  being  a 
monopoly,  and  to  the  numerous  injurious  restrictions 
imposed  on  its  operations.*  Without  liberty  and  with- 

*  "  Lord  King,  in  1826,  said  that  '  if  the  purpose  was  to  erect  an  estab 
lishment  to  do  mischief,  they  would  erect  it  on  the  very  principles  of  the 


156  MONEY. 

out  competition,  nothing  can  approach  perfection.  This 
cannot  be  repeated  too  often.  * 

Some  of  the  facts  connected  with  the  history  of  the 
Bank  of  England  will  throw  much  light  on  the  subject 
of  paper  money. 

The  Bank  of  England  has  now  existed  over  a  cen 
tury  and  a  half :  during  this  period  of  time,  war  after 
war  has  devastated  the  world  ;  nation  after  nation  has 
been  driven  to  national  bankruptcy  ;  and  yet  the  bank 
exists  more  firmly  than  ever.  The  suspension  of  specie 
payments  by  the  bank  in  1696  and  1797  was  the  con 
sequence  of  its  connection  with  the  state  (to  which  it 
had  loaned  its  entire  capital),  and  not  of  its  advances  to 
commerce  and  industry;  and  during  those  suspensions, 
the  public  never  ceased  to  accept  readily  its  notes  in 
payment  of  services  and  commodities,  even  though  they 
could  not  b3  converted  into  specie  except  at  a  pre 
mium.  Would  its  notes  have  b^en  thus  received  durinsr 

o 

the  suspension  of  specie  payments,  if  paper  money,  as 
many  persons  suppose,  is,  or  should  be,  a  mere  repre 
sentative  of  the  precious  metals  ? 

hank.  They  would  give  it  a  monopoly,  remove  from  it  all  fear  of  rivalry, 
and  connect  it  with  the  Government.'  "  (Macleod,  Theory  and  Practice  of 
Banking,  vol.  ii,  p.  254.) 

"  The  great  law  of  nature  in  the  industrial  world  is  free  trade.  There 
is  nothing  more  certain  in  all  the  range  of  science,  than  that  exclusive 
privileges  in  commerce  are  great  violations  of  natural  right.  Trading 
monopolies  are  moral  crimes.  When  Parliament  sold  to  the  Bank  ofEng_ 
land  the  exclusive  monopoly  of  banking,  it  sold  what  it  had  no  right 
to  sell."  (Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  p.  517.) 

*  "  The  admirable  effect  of  freedom  is  finely  exhibited  in  the  situation 
of  the  New  England  banks  in  1837,  after  a  period  of  unparalleled  specula 
tion,  during  which  they  could  not  increase  their  loans  to  more  than  forty- 
three  per  cent,  beyond  their  capital."  (H.  C.  Carey,  The  Credit  System, 
p.  113.) 


MONEY.  157 

The  suspension  of  1696  was,  in  a  great  measure, 
caused  by  the  undertaking  of  the  bank  to  have  recoined 
the  depreciated  silver  coins  then  in  circulation,  which, 
in  consequence  of  clipping  and  wear,  had  become  re 
duced,  on  an  average,  25  per  cent,  b^low  the  standard. 
For  this  purpose  the  bank  had  received,  and  then  held, 
a  large  amount  of  this  depreciated  silver,  which  it  could 
not  use  until  recoined.  The  difficulties  of  the  bank 
were  soon,  however,  overcome  by  the  aid  of  Government. 
Had  the  bank  not  loaned  its  entire  capital  to  the  state, 
the  depreciated  coin  in  its  vaults  could  not  have  caused 
a  suspension.  During  this  first  suspension  of  specie  pay 
ments,  the  notes  of  ths  bank  were  as  low  as  25  per  cent, 
discount,  but  this  was  at  a  moment  when  exchequer 
bills  and  treasury  bands  were  at  40,  50,  and  even  60  per 
cent,  discount  !  Can  there  be  a  better  evidence  of  the 
superiority  of  bank  notes  over  government  paper  issues  ? 

Previous  to  1759,  the  bank  issued  no  notes  below 
£20,  but  in  that  year  it  commenced  to  issue  notes  of 
£15  and  £10.  In  1794  the  bank  first  issued  notes 
under  £10. 

In  1720,  after  the  collapse  of  the  South  Sea  Com 
pany,  and  again  in  1745,  in  consequence  of  the  successes 
of  the  Pretender  in  Scotland,  the  bank  experienced 
severe  runs,  which  nearly  drained  it  of  its  coin:  on  both  of 
these  occasions  the  bank,  to  gain  time,  paid  its  notes  in 
sixpences  and  shillings,  blocked  up  its  doors  with  its 
own  friends,  who  returned  the  coin  they  received,  and 
thus  succeeded  in  weathering  the  danger.  We  have 
here  convincing  proofs  of  the  propriety  of  maintaining 
specie  payments  as  long  as  any  coin  remains  in  the 
vaults  of  a  bank.  In  most  cases,  if  the  bank  be  in  a 


158  MONEY. 

sound  condition,  the  drain  ceases  before  the  coin  is  ex 
hausted. 

"  In  1793,  on  the  execution  of  the  king  of  France, 
the  British  Government  expelled  the  French  ambassa 
dor,  and  the  Convention  instantly  declared  war.  .  .  . 
This  gave  a  shock  to  credit,  which  was  already  stagger 
ing.  On  the  15th  of  February,  a  house  of  considerable 
magnitude,  deep  in  corn  speculations,  failed,  and  on  the 
19th,  the  bank  refused  the  paper  of  Lane,  Son  &  Fraser, 
who  stopped  next  morning,  to  the  amount  of  nearly 
£1,000,000,  involving  a  great  number  of  other  respect 
able  houses.  In  the  mean  time,  the  panic  spread  to  the 
bankers.  Beginning  at  Newcastle,  the  panic  imme 
diately  spread  throughout  the  country.  It  was  com 
puted  that  there  were  nearly  four  hundred  country 
banks  at  that  time  ;  of  these  three  hundred  were  much 
shaken,  and  upward  of  one  hundred  stopped  payment. 
.  All  these  circumstances  naturally  produced  a 
demand  on  the  Bank  of  England  for  support  and  dis 
counts.  But  the  bank,  being  thoroughly  alarmed,  re 
solved  to  contract  its  issues.  Bankruptcies  multiplied 
with  frightful  rapidity.  The  Government  urged  the 
bank  to  come  forward  and  support  credit,  but  the  direc 
tors  resolutely  declined.  When  the  bank  adopted  this 
perverse  course,  universal  failure  seemed  imminent.  Sir 
John  Sinclair,  on  the  16th  of  April,  suggested  an  issue 
of  exchequer  bills.  The  subject  was  referred  to  a  com 
mittee  of  the  House  of  Commons,  who  recommended  an 
issue  of  £5,000,000.  No  sooner  was  the  act  passed 
than  a  large  sum  of  money,  £70,000,  was  sent  down  to 
Manchester  and  Glasgow,  on  the  strength  of  the  ex 
chequer  bills  which  were  not  yet  issued.  This  unex- 


MONEY.  159 

pected  supply  coming  so  much  earlier  than  was  expected, 
operated  like  magic,  and  had  a  greater  effect  in  restor 
ing  credit  than  ten  times  the  sum  could  have  had  at  a 
later  period.  The  whole  amount  of  exchequer  bills 
advanced  was  £2,202,000,  the  whole  of  which  was  re 
paid  ;  two  only  of  the  parties  assisted  became  bank 
rupts  ;  all  the  others  were  ultimately  solvent,  and  in 
many  instances  possessed  of  great  property." 

''  The  success  of  the  measure  was  perfect  and  com 
plete.  The  contemporary  writers  all  bear  witness  to  the 
extraordinary  effects  produced.  The  bullion  committee 
of  1810,  in  their  report,  warmly  approved  of  it,  and 
especially  cite  it  as  an  illustration  of  a  principle  which 
they  laid  down,  that  an  enlarged  accommodation  is  the 
true  remedy  for  that  occasional  failure  of  confidence  in 
the  country  districts  to  which  our  system  of  paper  credit 
is  unavoidably  exposed."  * 

"  The  position  of  the  Bank  was  : 

Circulation.  Bullion.  Discounts. 

1785,         £5,923,090  £4,973,926 

1789,          11,121,800  £8,645,860  2,035,901 

August,  1791,           11,672,320  8,055,510  1,898,640 

Febr'y,    1793,          11,888,910  4,010,680  6,456,041 

"  We  find  here  that  the  bank  had  fully  kept  up  its 
circulation,  and  largely  increased  its  discounts,  while  it 
supplied  the  country  with  a  large  amount  of  gold  ;  and 
yet  the  prices  of  almost  all  commodities  were  lower  in 
1793  than  they  had  been  in  the  two  years  preceeding, 
and  the  price  of  wheat  was  below  the  average  of  the 
three  years  previous  to  the  harvest  of  1791  ;  3  per  cent, 
consols  had  fallen  from  96  in  1792  to  72  in  1793,  at 
which  price  the  first  loan  in  preparation  for  the  war  was 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  pp.  69-74. 


160  MONEY. 

contracted."  *  We  find  here  certainly  no  evidence  to 
maintain  the  theory  that  the  volume  of  the  currency 
affects  prices. 

"  The  catastrophe  of  1797  began  in  1795.  The 
spring  of  1795  was  very  cold  and  backward,  the  sum 
mer  wet  and  stormy,  and  the  harvest  unusually  late. 
Under  these  circumstances,  wheat,  which  was  55s.  in 
in  January,  reached  108s.  in  August.  The  same  scarcity 
was  general  throughout  Europe  and  America.  Mr.  Pitt, 
in  1793,  having  obtained  from  Parliament  an  act  per 
mitting  the  bank  to  make  advances  to  Government  in 
anticipation  of  the  taxes,  obtained  large  advances  in 
1795  to  aid  him  in  the  foreign  subsidies,  which,  in  that 
year  alone,  amounted  to  £6.253,140.  All  this  produced 
a  large  foreign  drain  of  bullion,  and  that  of  the  bank  in 
December,  1796,  was  reduced  to  £2.508,000,  when  a 
drain  set  in  more  severe  than  ever.  In  December,  the 
French  expedition  under  Hoche  sailed,  but  fortunately 
it  was  dispersed  by  a  tempest ;  only  a  few  straggling 
vessels  reached  Ireland  in  the  last  week  of  December^ 
the  rest  putting  back  to  France.  This  terrible  menace 
produced  a  continual  demand  for  gold  for  Ireland.  A 
French  frigate  went  into  one  of  the  Welsh  harbors  and 
landed  1,200  men.  This  created  a  perfect  panic  among 
the  farmers.  On  Saturday,  18th  of  February,  1797, 
being  market  day,  the  farmers,  who*  at  that  time  of  year 
had  the  principal  part  of  their  rents  (crops  ?)  in  their 
hands,  actuated  by  the  terror  of  an  immediate  invasion, 
hurried  into  Newcastle  the  produce  of  their  farms, 
which  they  sold  at  very  low  prices,  and  immediately 
rushed  to  the  different  banks  to  demand  specie.  Seeing 

*  Tooke,  History  of  Prices,  vol.  i,  pp.  194-197. 


MONEY.  161 

this  universal  panic,  the  banks,  by  agreement,  stopped 
payment  on  the  Monday. 

"On  the  21st  of  February,  the  state  of  the  bank  be 
came  so  alarming  that  the  directors  resolved  that  the 
time  had  come  when  they  must  make  a  communication 
to  the  Government.  The  directors  had  used  the  most 
violent  efforts  to  contract  their  loans.  On  the  21st  of 
January,  they  were  £10,550,830;  on  the  25th  of 
February,  they  were  £8,640,250  ;  a  reduction  of  nearly 
£2,000,000.  In  order  to  meet  their  payments,  persons 
were  obliged  to  sell  their  stock  of  all  descriptions,  at 
an  enormous  sacrifice.  The  3  per  cents  fell  to  51,  and 
other  stock  in  proportion. 

"  A  meeting  of  the  cabinet  was  held  on  Sunday  at 
Whitehall,  and  an  order  in  council  was  issued,  requiring 
the  directors  of  the  Bank  of  England  to  suspend  all 
payments  in  cash,  until  the  sense  of  Parliament  could 
be  taken  on  the  subject. 

"  The  severe  restrictions  the  bank  attempted  to 
place  iipon  commerce,  very  greatly  contributed  to  bring 
on  the  calamity  by  which  it  was  subsequently  over 
whelmed.  The  issues,  which  were  £14,000,000  when 
the  exchange  was  against  the  country,  were  reduced  to 
£8,640,250  when  they  had  been  for  several  months  emi 
nently  favorable.  It  appears  from  the  entire  evidence 
in  the  reports,  that  it  was  the  excessive  restriction  of 
notes  which  drained  their  vaults  during  the  autumn  of 
1796,  and  that  if  they  had  been  more  liberal  in  their 
issues,  their  vaults  would  have  been  much  better  re 
plenished  with  cash."  * 

"  But  while  tr.e  price  of  public  securities  was  great- 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  pp.  76-97. 


162  MONEY. 

ly  affected,  the  effect  of  the  contraction  was  hardly  per 
ceptible  on  the  markets  for  goods.  The  price  of  corn 
had  previously  been  falling  from  restored  abundance, 
while  from  the  opposite  cause,  scarcity,  actual  or  ap^ 
prehended,  colonial  produce  continued  to  rise,  notwith 
standing  not  only  the  pressure  on  the  money  market, 
but  notwithstanding,  also,  the  advance  of  the  exchanges. 
It  is  not  possible  to  adduce  an  instance  more  striking 
of  the  inefficiency  of  a  contraction  of  the  circulation 
in  counteracting  the  tendency  to  an  advance  of  prices 
under  the  influence  of  actual  scarcity,  or  of  the  force 
of  opinion  of  prospective  scarcity  relatively  to  the  esti 
mated  rate  of  consumption."  * 

The  merchants,  brokers,  and  shipowners  of  London 
met  on  the  same  day  that  the  bank  suspended  specie 
payments,  and  resolved  that  they  would  continue  to  re 
ceive  the  notes  of  the  bank  in  payment  of  all  debts  due 
them,  and  would  make  their  own  payments  in  them 
also.  This  had  become  necessary,  in  a  measure,  be 
cause  the  Government  had  only  authorized  the  bank 
to  cease  the  redemption  of  the  notes  in  specie,  but  had 
not  made  them  a  legal  tender.  It  was  only  in  1811, 
in  the  midst  of  the  immense  efforts  made  by  England 
to  overthrow  Napoleon,  and  when  Lord  King  threaten 
ed  to  force  his  tenants  to  pay  their  rents  in  gold  or  its 
equivalent,  that  the  Government  resorted  to  this  ex 
treme  measure.  The  legal  suspension  lasted  till  1822, 
but  the  bank  in  reality  resumed  cash  payments  in 
1820,  after  which  gold  ceased  to  be  at  premium.  The 
issues  of  the  bank  were  carried  as  high  as  £29,500,000, 
principally  in  consequence  of  the  necessities  of  the 

*  Tooke,  History  of  Prices,  vol.  i,  pp.  205,  206. 


MONET.  163 

Government  ;  and  the  premium  on  gold  rose  as  high 
as  41  per  cent.  The  suspension  of  the  Bank  of  Eng 
land  gave  rise  to  theories  which  yet  control  all  legisla 
tion  in  regard  to  banks  and  bank  issues,  although  all 
the  facts  upon  which  the  theories  are  founded,  when 
carefully  analyzed  and  studied,  refute  them  completely. 
Every  rise  of  price  produced  by  bad  crops,  and  by  the 
interruptions  to  commerce  consequent  upon  war  and 
non-intercourse  between  nations,  were  all  attributed  to 
a  redundant  currency.  But  to-day,  thanks  to  the  in 
telligence  and  industry  of  Mr.  John  Tooke,  aided  in 
his  latter  researches  by  Mr.  Danson  and  Mr.  Win. 
Newmarch,  all  the  fluctuations  in  prices  during  the 
suspension  of  the  bank,  as  well  as  those  since  the  re 
sumption  of  cash  payments  in  1820,  have  been  clearly 
traced  to  cost  of  production,  and  supply  and  demand — 
sole  causes  that  affect  prices,  if  there  be  any  truth  in 
political  economy,  which  teaches  that  all  the  results 
of  labor  are  controlled  by  natural  laws,  and  not  solely 
by  man's  actions  or  will.  The  following  extracts  from 
Mr.  Tooke's  "  History  of  Prices"  will  greatly  facilitate 
the  comprehension  of  the  question  of  paper  money  ;  but 
everyone  desirous  of  understanding  the  subject  thor 
oughly,  should  read  the  whole  of  that  able  and  interest 
ing  work. 

"  The  circulation  of  the  Bank  of  England  on  August  31, 

im>  was £10,286,780 

The  average  circulation  for  the  quarter  ending  Septem 
ber  30,  1794, 10,422,900 

The  average  circulation  for  the  quarter  ending  Decem- 

ber  31,1794 10,964,980 

The  average  circulation  for  the  quarter  ending  March 

31>  1795 12,421,260 


164  MONEY. 

"  Notwithstanding  these  increased  issues,  the  ex 
changes  actually  experienced  some  improvement",  (i.  e. 
became  more  favorable  to  England).  (Vol.  i;  p.  198.) 

"  The  circulation  of  the  Bank,  was 

On  Feb.  28,  1795,      £14,017,510 ;    exchange  on  Hamburg  36s.  0^. 
Aug.  31,     "  10,862,200  "  "  32s.  6d. 

Here  was  a  decrease  of  22  £  per  cent,  in  the  circu 
lation,  accompanied  by  a  rise  of  10  per  cent,  in  foreign 
exchange,  the  very  reverse  of  the  currency  theory. 

"  At  the  close  of  1795,  a  notice  was  exhibited  at 
the  doors  of  the  bank,  announcing  that  in  future,  only 
a  certain  proportion  of  the  applications  for  discount 
would  be  complied  with,  however  high  might  be  the 
credit,  of  the  parties.  This  announcement,  combined 
with  the  actual  contraction  of  the  issues,  occasioned  a 
very  severe  pressure  on  the  money  market,  and  in  the 
spring  of  1796  there  were  great  complaints  of  an  in 
sufficiency  of  circulating  medium  for  the  trade  in  the 
metropolis."  (Vol.  i.,  p.  200.)  The  pressure  in  the 
money  market  here  recorded  is  particularly  deserving 
of  notice,  as  showing  that  the  high  price  of  provisions 
in  the  spring  of  1796,  was  not  in  any  degree  owing  to 
an  enlarged  circulation.  The  circulation  of  the  bank, 
exclusive  of  post  bills,  was  : 

Avernee  price  of -wheat  in  Lon 
don  market  following  3  months. 

On  February  28,  1795,         £13,539,160;         57s.  per  quarter. 
"  1796,  11,030,116;         94s.  " 

(Vol.  I.,  p.  202.) 
"  The  position  of  the  bank  was  : 

February  28,  1797.  Ansmst,  1708. 

Circulation,  £9.674.780  £12,180,610 

Deposits,  4.891,530  8,300,720 

Securities,  private,  5,123.319  6,419,602 

Bullion,  1,086,170  6,546,100 


MONEY.  165 

"  This  increased  issue  of  paper  was  accompanied  by  a 
rise  (fall*)  of  the  exchanges,  the  rapid  influx  of  bullion, 
and  a  great  fall  in  the  prices  of  provisions."  (Vol.  i, 
pp.  206,  207.) 

The  real  cause  of  the  rise  of  gold  was  the  demand 
for  foreign  payments.  "  Of  the  magnitude  of  the  extra 
demand  for  immediate  payments  abroad,  some  idea 
may  be  formed  by  the  fact  that  the  foreign  expendi 
tures  of  the  Government  were 

In  179  i £8,335,592 

1795 11,040,236 

1790 10,649,916 

Excess  of  naval  stores  imported  in  these  years  4,702,819 

Grain  imported  in  these  years  7,44  ,012 


£42,174,575 

of  which  the  largest  proportion   fell  upon  the  last  ten 
years."     (Vol.  i,  p.  208.) 

"  If  it  was  the  amount  of  bank  notes  that  raised 
prices  in  1800  and  1801,  how  happened  it  that  an  in 
creased  amount  in  1802  did  not  sustain  the  prices,  and 
much  more,  prevent  a  fall  of  above  50  per  cent.  ?  And 
if  the  exchanges  had  been  depressed  (raised)  and  the 
price  of  bullion  raised  by  the  amount  of  the  circula 
tion,  how  happened  it  that  they  tended  upon  the  abate 
ment  of  foreign  payments  to  their  par  level  coinci- 
dently  with  increased  issues,  as  will  appear  by  the  fol 
lowing  statement : 


Exchange  on 
The  average  circulation  Hamburg, 

Dec.  31.         For'n  Gold.     Sil'r  Dolla.      Wheat. 

Of  1800  was  £13,421,920     30s.  Od.     41.  6s.  Vd.     5s.  Ud.      133s.  Qd. 

1801  "     13,454,370     31s.  lid.  41.  3s.  Qd.     5s.  W$d.    75*.  Gd. 

1802  "     13,917,980     Us.  Od.     41.  Os.  Qd.     5s.  4±d.      57s.  Id. 

(Vol.  i,  p.  249.) 
*  Seenotop.  115. 


166  MONEY. 

"  The  great  rise  of  the  prices  of  corn,  and  of  other 
leading  articles  of  consumption,  some  of  them  to  a 
height  beyond  any  which  they  ever  afterward  attained, 
and  the  great  excitement  in  1807  and  1809,  took  place 
under  a  remarkably  restricted  and  equable  state  of  the 
bank  circulation-,  and  in  a  state  of  the  currency  which, 
judging  by  the  exchanges,  and  the  price  of  bullion, 
and  the  position  of  the  bank,  as  to  its  treasure,  com 
pared  with  its  liabilities,  was  such  as  it  might  have  been 
in  a  convertible  state  of  the  paper."  (Vol.  i,  p.  291.) 

"  In  the  early  part  of  1809  there  was  a  small  in 
crease  of  the  amount  of  the  bank  circulation.  Not 
withstanding  a  further  increase  of  banknotes,  the  prices 
of  nearly  all  commodities  fell  considerably  with  such 
increase"  (Vol.  i,  p.  361.) 

"  But  with  these  exceptions  (lands,  houses,  and  ship 
ping),  which,  so  explained,  afford  no  ground  for  ascrib 
ing  their  comparatively  high  price  to  depreciation  of 
money,  nearly  all  other  objects  of  exchange  ivere  lower 
in  price  in  1810  and  1811,  than  in  1800,  in  few  in- 
tances  less  than  20  per  cent.,  and  in  some  instances  up 
ward  of  50  per  cent.,  as  measured  in  paper,  while  gold 
had  risen  25  per  cent.  (Vol.  i,  p.  313.) 

"  The  discredit  and  distress  in  1810  were  clearly 
the  consequence  of  the  great  fall  of  prices.  Now  if,  as 
according  to  that  theory  is  supposed,  the  rise  of  prices 
had  been  caused  by  an  increase  of  Bank  of  England 
paper,  how  happened  it,  that  with  a  further  increased 
issue  they  should  have  fallen  ?  And  if  that  increased 
issue  had  not  been  enough,  why  should  there  not  have 
been  a  still  further  issue,  for  the  express  purpose  of  sup 
porting  prices,  and  thus  preventing  the  loss  and  dis 
credit  attending  the  fall  ?  "  (Vol.  i,  p.  357.) 


MONEY.  167 

"  In  1810,  the  Bank  of  England  increased  its  issues 
£4,500,000,  and  the  exchanges  rose  (fell),  that  on 
Hamburgh  from  28s.  4d.  to  31s.  9d.  and  the  price  of 
gold  fell  from  41.  Us.  to  41  4s.  6d."  (Vol.  i,  p.  362.) 

"  Coincidently  with  the  large  discounts  in  1810,  the 
exchanges  rose  (fell),  while  the  prices  of  commodities 
experienced  a  very  considerable  fall."  (Vol.  iii,  p.  123.) 

"  In  1808,  when  the  utmost  extravagance  of  specu 
lation  prevailed,  the  amount  of  private  securities  held 
by  the  bank  ranged  at  between  13  and  14  millions, — • 
being  no  perceptible  increase  upon  what  it  had  been 
during  the  three  or  four  years  preceding.  But  the  fall 
of  prices  thenceforward,  was  followed  by  a  progressive 
increase  of  issues,  through  the  medium  of  discounts, 
which  in  August,  1810,  reached  the  enormous  and  un 
precedented  amount  of  £23,775,093.  This  greatly  in 
creased  amount  of  discounts,  and  the  consequent  en 
largement  of  the  bank  circulation,  were  coincident  with 
the  most  depressed  state  of  the  markets,  and  with  the 
greatest  commercial  distress.  In  proportion  as  markets 
and  commercial  credit  tended  to  revival,  the  private 
securities  held  by  the  bank  underwent  a  progressive 
diminution  ;  and  the  amount  in  February,  1813, — a 
period  which  was  precisely  that  in  which  the  prices  of 
both  imported  and  exportable  commodities,  and  of  labor, 
were  in  the  aggregate  higher  than  in  any  former  or  sub 
sequent  period, — was  reduced  to  £12,894,324,  being  a 
reduction  of  upward  of  10  millions/'  (Vol.  i,  pp.  363- 
365.) 

Mr.  Hume  says  that  at  the  very  time  that  the  bul- 
lionists  in  England  were  attributing  every  rise  of  price 
to  overissues  and  depreciation  of  bank  notes,  "  the 


168  MONEY. 

prices  of  sugar  and  coffee,  on  the  Continent,  computed 
in  gold,  were  four  or  five  times  higher  than  their  prices 
in  England,  computed  in  bank  notes.  Coffee  was  worth 
in  England,  in  bank  notes,  6d.  per  pound,  and  on  the 
Continent  3s.  to  4s.  Gold  was  worth  in  England,  in 
bank  notes,  £5  per  ounce,  and  on  the  Continent  31.  17s. 
10  { d.  in  gold. 

"  It  is  too  absurd,  of  course,  to  say  literally  and  dis 
tinctly  that  the  gold  was  remitted  instead  of  the  coffee, 
as  a  preferable  mercantile  operation  ;  and  yet  if  it  was 
not  so,  under  some  explanation  which  I  am  totally  un 
able  to  conjecture,  what  becomes  of  Mr.  Huskisson's 
advice  to  the  bank,  to  draw  in  a  number  of  their  notes, 
in  order  to  reduce  the  price  of  coffee  to  the  sum  at 
which  it  would  be  a  preferable  remittance  to  gold. 
While  gold  was  at  a  premium  in  England,  there  was 
not  a  place  on  the  globe  at  which  we  could  gain  access 
with  some  goods,  as  a  valuable  consideration,  from  whence 
the  gold  and  silver  did  riot  spontaneously  flow  to  us  ; 
and  there  was  not  a  country  in  the  world  in  which  so 
large  a  quantity  of  desirable  goods  could  be  obtained  for 
an  ounce  of  gold  as  in  England.  ...  It  is  a  posi 
tive  fact  that  England  was  the  cheapest  country  in  the 
world  during  the  time  when  gold  was  25  per  cent,  and 
upwarl  above  the  mint  price."  *  Yet  Mr.  Huskisson, 
in  a  speech  delivered  May  7th,  1811,  asserted  that  it 
was  a  "  fact  admitted  on  all  hands,  that  there  was  a 
profit  of  20  per  cent,  made  by  the  exportation  of  gold 
to  France."  f 

*  Tooke,  History  of  Prices,  vol.  iii,  pp.  107-109. 
f  Id.,  ib.,  vol.  iii,  p.  110. 


MONEY.  169 

The  circulation  of  £5  and  upward  was  Price  of  wheat  in  December. 

Last  quarter  of  1812,          £15,647,350.  121  shillings. 

"  "          1813,  16,092,590.  73         " 

"  "          1814,  18,502,090.  65         " 

In  January,  1815,  the  price  of  wheat  declined  to  62        " 

(Vol.  ii,  p.  32.) 

Circulation  of  the  Bank  of  England.    Price  of  Gold.    Ex.  on  Hamburg.    On  Paris. 
In  Feb.  1814,  £24,801,080.          51.  8s.  29s.         frs.  21. 

In  Aug.     "       28,368,290.          45  33  23.30. 

(Vol.  ii,  pp.  28-30.) 

The  cause  of  this  fall  of  gold  and  of  the  foreign  ex 
changes  was  that  the  preliminaries  of  peace  between 
France  and  the  allies  were  signed  in  April,  1814. 

"  The  landing  of  Napoleon  in  France  in  1815,  had 
the  effect  of  instantly  depressing  (raising)  the  exchanges, 
and  raising  the  price  of  gold  in  an  extraordinary  degree. 
The  exchanges,  which  immediately  previous  to  the  in 
telligence  of  that  event  had  been, 

On  Hamburg.  On  Paris.  Price  of  Gold. 

32.3.  frs.  22.10.  41.  9s. 

Suddenly  fell  (rose)  to       28.0.  18.80.  5     7 

"  After  the  battle  of  Waterloo  the  exchanges  rose 
(fell)  and  the  price  of  gold  fell  as  rapidly  as  they  had 
just  before  tended  in  an  opposite  direction."  (Vol.  ii,  p. 
83.)* 

*  "On  receipt  of  the  news  of  Bonaparte's  landing  from  Elba,  the 
price  of  gold  in  the  London  market  rose  ten  per  cent,  in  one  morning,  and 
that  without  the  slightest  alteration  whatever  in  the  amount  of  the  incon 
vertible  issues  of  the  bank.  In  the  course  of  a  few  days  more,  the  advance 
of  price  amounted  to  twenty  per  cent ,  and  this  advance  was  maintained 
until  after  the  battle  of  Waterloo,  when  the  prioe  of  gold  fell  nearly  as 
rapidly  as  it  had  risen,  and  in  a  manner  equally  unaccounted  for  by  any 
corresponding  movement  of  the  hank  circulation.  Than  the  rationale  of 
these  phenomena  nothing'can  be  simpler.  A  crisis  had  suddenly  arisen  which 
called  for  an  instant  and  vast  supply  of  gold,  at  whatever  cost  for  the 
8 


170  MONEY. 

The  rise  of  gold  on  this,  and  on  every  other  occasion, 
could  not  have  occurred  were  it  not  for  the  suspension 
of  specie  payments  ;  for,  with  redemption  of  notes  in 
specie,  a  drain  of  gold  is  invariably  supplied  at  par 
from  the  bank  vaults.  Therefore  a  rise  of  gold  above 
par  is  an  impossibility  as  long  as  specie  payments  are 
maintained.  But  what  would  have  been  the  condition 
of  commercial  affairs  in  1815,  had  the  bank  then  re 
deemed  its  notes  in  gold,  and  the  bank  act  of  1844 
been  in  existence  ?  According  to  the  theory  of  the 
advocates  of  "  the  currency  principle  "  and  of  the  bank 
act,  every  sovereign  exported  for  the  use  of  the  armies 
would  have  required  the  withdrawal  of  an  equal  amount 
of  bank  notes  from  circulation  ;  and,  as  the  circulation 
can  never  be  increased  beyond  the  amount  needed  by 
the  community,  every  decrease  of  the  circulation  con 
sequent  on  the  export  of  gold  would  have  deprived  the 
community  of  notes  actually  indispensable  to  the  daily 
transactions,  which  would  therefore  have  been  dimin 
ished  or  arrested,  to  the  great  detriment  of  the  entire 
community.  This  state  of  things  is  precisely  what 

(Equipment  of  armies,  the  remittance  of  subsidies,  and  the  repletion  of  mili 
tary  chests.  There  was  no  time  to  wait  till  this  supply  could  be  brought 
from  countries  where  there  was  gold  in  abundance  ;  it  must  be  procured  on 
the  spot,  and  that  spot  was  one  from  which  nearly  all  hoards  of  the  precious 
metals  had  long  been  swept  away.  The  price  of  gold,  therefore,  rose  pre 
cisely  on  the  same  principle  on  which  the  price  of  corn  rises  in  a  famine  ; 
it  rose  to  a  famine  rate,  and  again  fell  the  moment  the  famine  demand  had 
ceased.  And  this  great  fact  at  once  affords  the  most  satisfactory  demon 
stration  of  the  futility  of  any  scheme  for  testing  the  value  of  conventional 
notes  by  the  price  of  gold,  and  furnishes  the  most  unanswerable  refutation 
of  the  theory  which  would  ascribe  all  the  variations  of  the  price  of  gold 
(luring  the  continuance  of  the  bank  restrictions  to  the  fluctuations  of  the 
bank  issues."  (Fullarton  on  the  Regulation  of  Currencies,  p.  23.) 


MONEY.  171 

heretofore  has  constantly  occurred  in  the  United  States, 
from  the  erroneous  action  of  the  banks,  every  time  that 
a  temporary  exportation  of  gold  occurred. 

"In  1817  gold  was  flowing  in  largely,  and  the 
bullion  in  the  bank  had,  by  August,  reached  the  large 
amount  —  then  without  precedent — of  £11,668,266. 
The  circulation  being  then  £29,503,000,  nearly  the 
highest  amount  attained  by  the  outstanding  notes  of 
the  Bank  of  England/'  (Vol.  iii,  page  131.)* 

"  According  to  what  definition  can  it  be  contended 
that  this  rise  in  the  price  of  coin,  between  the  spring 
of  1816  and  the  summer  of  1817,  being  coincident  with 
an  influx  of  upward  of  £7,000,000  of  bullion  into  the 
coffers  of  the  bank,  raising  the  amount  of  it  to  a  sum 
of  £11,668,260 — an  amount  beyond  any  that  the  bank 
had  ever  before  possessed— should  be  considered  as  re 
sulting  from  a  depreciation  of  bank  paper  ?  "  (Vol.  ii, 
p.  18.) 

"In  short,  turn  the  theory  which  ascribes  the  rise 
of  coin  in  1816  and  1817  to  the  local  influence  of  our 
currency  in  every  way  possible,  consistently  with  the 
facts,  and  it  will  be  found  to  fail  wholly  and  in  all  its 
parts."  (Vol.  ii,  p.  19.) 

"  While  the  amount  of  the  bank  issues  was,  from 
1797  to  1817,  undergoing,  with  trifling  exceptions,  a 
progressive  increase,  the  exchanges,  upon  every  pause 

*  France  offers  a  similar  example  of  the  precious  metals  flowing  into  a 
country  while  the  issues  of  irredeemable  paper  currency  were  increasing. 
The  Bank  of  France  suspended  specie  payments  on  the  16th  March,  1848, 
and  resumed  them  on  the  6th  August,  1850.     Its  position  was, 
On  the  6th  April,  1848,    circulation,    frs.  295,500,000;  bullion,    fr*.     97,000,000 
4th  July,     1850,  "  «     500,000,000        "  "    454,250,000t 

t  Tooke,  History  of  Prices,  vol.  vi,  p.  61. 


172  MONEY. 

from  the  pressure  of  extraordinary  foreign  payments, 
tended  to  a  recovery,  and  when  this  pressure  had  en 
tirely  ceased  the  exchanges  and  the  price  of  gold  were 
restored  to  par,  while  the  hank  circulation  was  larger 
in  amount  than  at  any  preceding  period/'  (Vol.  i,  pp. 
157,  158.) 

Fullarton  says  :  "  With  only  one  or  two  exceptions, 
and  those  admitting  of  satisfactory,  explanation,  every 
remarkable  fall  (rise)  of  the  exchanges,  followed  by  a 
drain  of  gold,  that  has  occurred  during  the  last  half 
century,  has  been  coincident  throughout  with  a  com 
paratively  low  state  of  the  circulating  medium,  and 
vice  versa.  On  no  occasion  was  this  proposition  more 
strikingly  exemplified  than  during  the  period  immedi 
ately  preceding  the  suspension  of  cash  payments  in 
1797,  when,  for  two  years  together,  a  system  of  the 
most  determined  contraction  was  carried  on  by  the 
directors  of  the  Bank  of  England  with  unrelenting  per 
severance,  reducing  the  circulation  from  £16,017,510 
on  the  28th  February,  1795,  to  £8,640,250  on  the 
25th  February,  1797,  without  arresting,  in  the  least 
apparent  degree,  the  drain  of  gold  which  was  then  in 
progress  for  restoring  the  exchanges.  The  restoration 
of  the  exchanges  to  its  bullion  par,  from  a  depression 
of  full  thirty  per  cent.,  was  accomplished  in  1816,  after 
various  remarkable  vicissitudes,  in  the  face  of  an  en 
largement  of  the  issues  of  the  Bank  of  England  to  an 
extent  varying  from  three  to  six  millions."  * 

The  London  Economist  of  22d  November,  1862, 
gives  the  following  interesting  table  of  the  value  of 

*  On  the  Regulation  of  Currencies,  p.  120. 


MONEY. 


173 


gold  during  the  suspension  of  the  bank,  to  which  we 
annex  the  semiannual  statements  of  the  circulation  : 


Average  market  price  of 
Standard  Gold,  per  oz. 

Average  prei 
on  Standard  i 

1809,  £4  10*.  Qd. 

16*  p 

1810, 

4    5 

0 

9r'5 

1811, 

4  17 

1 

24* 

1812, 

5    1 

4 

30 

Sept,  to  Dec.  1812, 

5    8 

0 

38* 

1813, 

5    6 

2 

SfjA? 

Nov.  1812,  to  March,  1813, 

5  10 

0 

41 

1814, 

5    1 

8 

30* 

1815, 

4  12 

9 

18g 

1816, 

4    0 

0 

2* 

Oct.  to  Dec.  1816, 

3  18 

6 

Less  than    1 

1817, 

4    0 

0 

2* 

1818, 

4    1 

5 

5* 

1819  to  Feb. 

4    3 

0 

6* 

1820, 

3  17 

10* 

0 

Circulation. 
February.  August. 

16|  p.  ct.  £18,542,860  £19,574,180 


21,019,600 
23,360,220 
23,408,320 


24,793,990 
23.286,850 
23,026,880 


23,214,930  24,828,120 

24,808,080  28,368,290 

27,261,650  27,248.670 

27,013,620  26,758,720 


27,397,900  29,543,780 

27,770,970  26,202,150 

25 126,700  25,252,690 

23,484,110  24,299,340 


The  author  of  "  Money,"  in  the  Encyclopaedia  Bri- 
tannica,  says  :  "  The  premium  on  gold  in  1814  is  an 
indigestible  fact  for  those  who  contend  that  bank  notes, 
being  issued  in  proportion  to  the  demand,  have  not 
been  depreciated  from  excessive  issues/'  But  what 
evidence  have  we  that  the  premium  on  gold  in  1814 
was  the  consequence  of  oVer  issues  of  bank  notes  ?  We 
find  gold  in 


um,  -with  av'ge  issues  of  £19.000,000 

"  "  22,900,000 

"  "  23.300,000 

"  "  23,200,000 

"  "  24,000,000 

"  "  26,500,000 

"  "  27.250000 

"  "  26,900,000 

"  "  28.500.000 


1809,  at  Ifii  per  ct.  premiu 

1810, 

QTG 

* 

1811, 

24* 

< 

1812, 

30 

c 

1813, 

36 

» 

1814, 

30 

c 

1815, 

18| 

* 

1816, 

2*9 

« 

1817, 

-* 

< 

1818, 

5* 

« 

Feb.  1819, 

Qi 

« 

1820, 

Par 

« 

with  issues  of 


27,000.000 
25,100,000 


With  av'ge  issues  of   23,900.000 


From  1809  to  1810,  the  circulation  increased  twenty 


174  MONEY. 

per  cent.,  while  the  premium  on  gold  fell  seven  per 
cent.  From  1810  to  1811  the  circulation  increased 
less  than  two  per  cent.,  and  yet  the  premium  on  gold 
rose  fifteen  and  a  half  per  cent.  From  1811  to  1813 
the  circulation  only  increased  three  per  cent.,  and  yet 
the  premium  on  gold  increased  eleven  and  a  half  per 
cent.  From  1813  to  1814  the  circulation  increased 
ten  per  cent.,  while  the  premium  on  gold  fell  six  per 
cent.  From  1814  to  1815  the  circulation  increased 
nearly  three  per  cent.,  while  the  premium  on  gold  fell 
eleven  per  cent.  From  1815  to  1816  the  circulation 
decreased  only  a  little  over  one  per  cent.,  and  yet  the 
premium  on  gold  fell  sixteen  and  a  half  per  cent.  From 
1816  to  1817  the  circulation  increased  five  per  cent., 
and  yet  the  premium  on  gold  remained  the  same  as  in 
1816,  whilst  in  1818,  with  a  decrease  in  the  circula 
tion  of  over  five  per  cent.,  the  premium  on  gold  more 
than  doubled,  rising  from  two  and  a  half  to  five  and  a 
half  per  cent.  In  1819  the  circulation  decreased  eight 
per  cent.,  while  the  premium  on  gold  rose  one  per  cent. 
What  connection  can  there  be  found  here  between  the 
issues  of  bank  notes  and  the  premium  on  gold  ?  And 
if  the  amount  of  the  circulation  had  no  influence  on 
gold,  how  can  it  have  influenced  the  prices  of  commod 
ities  and  labar  ? 

Mr.  Tooke  says  :  "  The  relatively  high  prices  of  ar 
ticles  divested  of  taxation,  and  not  the  objects  of  imme 
diate  war  expenditure,  in  the  interval  from  1793  to  1814, 
may  be  ascribed  to  the  following  general  circumstances  : 

"  1.  The  frequent  recurrence  of  seasons  of  an  unfa 
vorable  character,  there  having  been  in  that  interval 
no  fewer  than  eleven  seasons  (1794,  1795,  1798,  1800, 


MONEY.  175 

1804,  1807  to  1812)  in  which  the  general  produce  of 
corn,  but  more  especially  of  wheat,  was  deficient. 

"  2.  The  destruction  of  a  great  source  of  supply  of 
transatlantic  produce  by  the  revolution  in  St.  Domingo, 
which  rendered  sugar  and  coffee,  and  most  other  West 
India  produce,  scarce  and  dear  during  the  earlier  part 
of  the  war. 

"  3.  Obstructions  and  prohibitions  of  export  from  the 
Continent  of  Europe  of  articles  of  which,  whether  as 
raw  materials  of  our  manufactures,  or  naval  stores,  or 
food,  we  stood  in  urgent  need. 

"  4.  The  increased  cost  of  importation,  by  higher 
freights  and  insurance,  incidental  to  a  state  of  war  gen 
erally,  aggravated  by  the  peculiar  commercial  hostility 
and  exclusion  which  marked  the  latter  years. 

"  5.  The  difference  of  exchange,  which  in  the  last 
five  years  of  the  war  averaged  twenty  per  cent.* 

"  6.  A  higher  rate  of  interest,  in  consequence  of  the 
absorption,  by  the  war  loans,  of  a  considerable  propor 
tion  of  the  savings  of  individuals.'7 

"  The  causes  of  the  decline,  and  of  the  lower  range 
of  prices,  from  1814  to  1837,  except  1816-'17,  which 
was  a  moment  of  great  scarcity  over  all  Europe,  were  : 

"  1.  A  succession  of  more  favorable  seasons,  in  the 
last  twenty  years  from  1818,  there  having  been  but  five 
seasons  in  which  the  produce  of  wheat  was  decidedly 
deficient. 

"2.  The  removal  of  obstacles  from  the  several  sources 
of  foreign  supply  ;  a  great  extension  of  some  of  them, 
and  the  discovery  of  new  ones. 

*  Tooke  estimates  the  extra  war  charges  of  freight,  insurance,  and  loss 
on  exchange  on  wheat,  at  44s.  per  quarter !  (Vol.  ii,  p.  207.) 


176  MONEY. 

"  3.  A  great  reduction  of  the  charges  of  importation, 
by  low  freights  and  insurances,  and  the  improved  and 
cheaper  and  more  rapid  internal  communication. 

"  4.  A  rise  (fall)  in  the  foreign  exchanges,  and  conse 
quent  reduction  of  the  cost  of  all  imported  commod 
ities. 

"5.  Improvements  in  machinery,  in  chemistry,  and 
in  the  arts  and  sciences  generally,  all  tending  to  reduce 
the  cost  of  production  of  numerous  articles,  or  to  pro 
vide  cheaper  substitutes. 

"  6.  A  reduction  of  the  rate  of  interest."  * 

"  There  is  not,  as  far  as  I  have  been  able  to  discover, 
any  single  commodity  in  the  whole  range  of  articles 
embraced  in  the  most  extensive  list  of  prices,  the  vari 
ations  of  which  do  not  admit  of  being  distinctly  ac 
counted  for  by  circumstances  peculiar  to  it,  in  the 
relation  of  supply,  actual  or  contingent,  real  or  appre 
hended,  to  the  ordinary  rate  of  consumption,  without 
supposing  any  influence  from  the  bank  restriction  be 
yond  the  degree  in  which  the  difference  of  exchange, 
which  could  not  have  existed  but  for  the  restriction,"^ 
may  be  considered  to  have  operated  distinctly  on  the 
cost  of  production."  J 

"  McCulloch  states  '  that  there  is  not  a  single  com 
modity  that  has  fallen  in  price  since  1814,  the  fall  of 
which  may  not  be  satisfactorily  accounted  for  without 
reference  to  the  supply  of  gold  and  silver.'  It  seems  to 

*  History  of  Prices,  vol.  ii,  pp.  34P>,  348. 

f  The  words  we  have  italicised  prove  how  unfounded  is  the  criticism  of 
Mr.  Macleod  when  he  says:  "  We  can  hardly  think  Mr.  Tooke  can  be  cor 
rect  in  so  entirely  excluding  the  effect  of  the  depreciation  of  the  paper  cur 
rency  as-  he  does."  (Theory  and  Practice  of  Banking,  vol.  ii,  p.  179.) 

\  History  of  Prices,  vol.  ii,  p.  349. 


MONEY.  177 

follow  that  the  previous  rise  may  be  equally  accounted 
for  without  such  reference/'  * 

"At  the  end  of  1824  and  beginning  of  1825  the 
spirit  of  speculation  in  articles  of  consumption  had 
amounted  to  positive  infection,  numbers  of  persons  be 
ing  induced  to  go  out  of  their  own  line  of  business  to 
speculate  in  articles  with  which  they  had  no  concern 
whatever,  but  induced  by  representations  of  their 
brokers  to  do  so  in  the  hope  of  realizing  great  and  im 
mediate  gains.  The  recognition  of  the  independence 
of  the  South  American  States  and  Mexico,  opened  out 
at  this  period  a  boundless  field  for  speculation  and  the 
consumption  of  British  manufactures,  and  the  spirit  of 
speculation  was  aggravated  to  the  utmost  by  the  visions 
of  countless  wealth  which  was  to  be  extracted  from  the 
gold  and  silver  producing  countries,  and  immense 
schemes  were  formed  for  working  the  mines  with  Brit 
ish  capital.  Besides  which,  when  the  juvenile  repub 
lics  wanted  to  borrow  money  to  support  their  public 
credit,  the  British  capitalists  were  only  too  eager  to 
lend  it.  It  is  alleged  that  £150,000,000  of  British 
capital  was  sunk  in  different  ways  in  Mexico  and  South 
America." 

"  The  speculative  fever  was  at  its  height  in  the  first 
four  months  of  1825  ;  after  May  and  June  the  decline 
was  rapid.  The  South  American  loans  and  the  Mexi 
can  mining  schemes  proved  almost  universally  total 
losses.  Universal  discredit  now  succeeded,  goods  be 
came  unsalable,  so  that  stocks,  which  are  usually  held 
in  anticipation  of  demand,  were  wholly  unavailable  to 
meet  the  pecuniary  engagements  of  the  holders.  In 

*  Tooke,  History  of  Prices,  vol.  ii,  p.  353. 
8* 


178  MONEY. 

May  the  Bank  of  England  endeavored  violently  to  con 
tract  its  issues.  The  bullion,  which  stood  above  £14,- 
000,000  in  January,  1824;  was  reduced  to  £11,600,000 
in  October,  1824,  and  yet  the  bank  had  increased  its 
issues  £2,300,000.  In  April,  1825,  the  bullion  was 
further  diminished  by  upward  of  £4,000,000,  and  their 
issues  were  £3,600,000  higher  whan  they  had  only  £6,- 
650,000  of  bullion  than  when  they  had  £14,000,000." 

"  On  the  29th  November,  1825,  it  was  announced 
that  Sir  William  Elford's — a  large  bank  at  Plymouth 
— had  failed,  and  that  was  immediately  followed  by  the 
fall  of  Wentworth  &  Co.,  a  great  Yorkshire  firm.  By 
the  3d  December,  the  panic  had  fairly  set  in,  and  the 
whole  city  was  thrown  into  the  most  violent  state  of 
alarm  and  consternation.  On  that  day,  Saturday,  some 
of  the  directors  were  informed  that  .the  house  of  Pole, 
Thornton  &  Co.,  one  of  the  leading  city  banking  houses, 
was  in  difficulties,  and  at  a  hurried  meeting  held  on  the 
following  day,  it  was  decided  to  place  £300,000  at  their 
disposal  upon  proper  security.  During  the  week  the 
house  sustained  itself,  but  the  storm,  instead  of  abating, 
became  more  furious  than,  ever,  anct  on  Monday,  18th 
December,  Pole  &  Co.  finally  stopped  payment.  The 
fall  of  this  great  banking  house  was  the  signal  for  a 
general  run  upon  all  the  London  bankers,  and  three  or 
four  more  gave  way,  and  spread  universal  consternation 
among  the  country  banks,  sixty-three  of  which  succumb 
ed  to  the  crisis,  though  a  considerable  number  paid  20s. 
in  the  pound,  and  eventually  resumed  business.  From 
Monday,  the  12th,  to  Saturday,  the  17th  December,  was 
the  height  of  the  crisis  in  London." 

"  On  the  day  after  Pole  &  Co.  fell,  another  house  of 


MONEY.  179 

equal  magnitude  fell,  Williams,  Burgess  &  Co.  The 
panic  then  became  universal,  and  as  the  directors  of  the 
Bank  of  England  thought  that  they  would  certainly 
have  to  stop  payment,  they  sounded  the  Government  as 
to  a  restriction  act,  but  the  Government  absolutely  de 
clined  it,  and  it  was  resolved  that  the  bank  should  pay 
away  its  last  sovereign.  On  the  Saturday  the  coin  in 
bank  vaults  scarcely  exceeded  one  million,  but  when  the 
Saturday  evening  came  the  tide  receded,  and  the  direc 
tors  were  able  to  assure  the  ministry  that  all  danger 
was  over.  On  Monday,  the  19th,  about  £400,000  came 
from  France,  and  the  demands  having  sensibly  abated, 
the  supplies  from  the  mint  fully  equalled  or  rather  ex 
ceeded  the  sums  drawn  from  the  bank." 

"Mr.  Huskisson  said  afterward  in  the  House  of 
Commons,  that  during  forty  eight  hours  (Monday  and 
Tuesday,  December  12th  and  13th)  it  was  impossible 
to  convert  into  money,  to  any  extent,  the  best  securi 
ties  of  the  Government.  Persons  could  neither  sell 
exchequer  bills,  nor  bank  stock,  nor  East  India  stock, 
nor  the  public  funds.  Mr.  Baring  said  that  men  would 
not  part  with  their  money  on  any  terms,  nor  for  any 
security.  The  extent  to  which  the  distress  had  reached 
was  melancholy  to  the  last  degree.  Persons  of  un 
doubted  wealth  and  real  capital  did  not  know  whether 
they  should  be  able  to  meet  their  engagements  for  the 
next  day.  By  this  time,  however,  the  exchanges  had 
decidedly  turned  in  favor  of  the  country,  and  on  Wed 
nesday,  the  14th,  the  bank  totally  changed  their  policy, 
and  discounted  with  the  utmost  profuseness.  They 
made  enormous  advances  on  exchequer  bills,  and  securi 
ties  of  all  sorts.  This  audacious  policy  was  crqwned 


180  MONEY, 

with  the  most  complete  success ;  the  panic  was  stayed 
almost  immediately.  Between  Wednesday,  the  14  h, 
and  Siturdiiy,  the  17th,  the  bank  issued  upward  of  £5,- 
000,000  of  notes.  By  the  24. h  December,  the  panic 
was  completely  allayed  all  over  the  country,  and  the 
amount  of  the  one-pound  notes  the  bank  issued  was 
under  £500,000,  and  by  the  beginning  of  1826  the 
credit  of  the  banking  world  was  completely  restored. 
Had  the  bank  on  Monday,  the  12th,  adopted  the  course 
which  was  adopted  on  Wednesday,  the  -14th,  the  whole 
of  that  terrific  crisis  would  have  been  avoided.  Sir 
Peter  Pole  &  Co.  had  a  surplus  of  £170,000  after  pay 
ment  of  all  claims  against  them,  besides  large  landed 
property  belonging  to  Sir  Peter  Pole,  and  about  £100,- 
000,  the  private  property  of  other  members  of  the, firm. 
Williams,  Burgess  &  Co.  had  enough  to  pay  40s.  in  the 
pound." 

"  WThen  the  causes  of  this  terrible  calamity  came  to 
"be  discussed,  there  were  not  wanting  many  who  laid  the 
wh,*le  blame  upon  the  excessive  issues  of  the  bank,  as 
well  as  the  excessive  issues  of  the  country  banks.  But 
though  it  is  indisputable  that  the  bank  acted  on  the 
most  unsound  principles,  in  not  contracting  its  issues 
when  "the  great  drain  of  bullion  for  exportation  was 
going  on,  it  is  a  mere  delusion  for  men  to  attribute  the 
consequences  of  their  own  wild  and  extravagant  mania 
to  the  Bank  of  England,  or  to  any  bank.  The  errors 
of  all  the  banks  put  together  were  trivial  compared  to 
the  outbreaks  of  speculative  insanity  which  seized  upon 
all  classes.  It  was  not  the  issue  of  some  bank  notes 
mor •»  or  less  which  originated  the  calamity,  but  the  in 
satiable  thirst  for  growing  suddenly  rich,  that  seized 


MONEY.  181 

upon  so  many  persons,  and  led  them  to  embark  in  the 
maddest  schemes,  totally  out  of  their  line  of  business. 
Was  it  the  issue  of  bank  notes  that  led  a  respectable 
bookselling  firm  to  risk  £100,000  on  a  speculation  in 
hops  ?" * 

Immediately  after  the  ministry  refused  their  assent 
to  the  application  of  the  bank  for  authority  to  suspend 
specie  payments,  a  conference  was  held  -between  Lord 
Liverpool,  the  Prime  Minister,  Mr.  Huskisson,  the 
Chancellor  of  the  Exchequer,  the  Governor  of  the  Bank, 
and  Mr.  Baring,  afterward  Lord  Ashburton.  At  this 
conference  it  was  resolved  to  resort  to  the  right  of  the 
bank  to  issue  one-pound  notes  granted  in  1797,  but 
which  had  not  been  exercised  for  some  time.  A  box  con 
taining  600,030  or  700.000  of  these  one-pound  notes, 
which  had  been  put  aside  unused,  had  been  discovered 
by  accident  ;  they  were  immediately  issued  in  the  week 
ending  24;h  December,  1825,  and  relieved  the  bank  of 
a  demand  for  gold  to  that  extent,  as  these  bank  notes, 
to  the  country  bankers,  were  as  goxl  as  sovereigns. 
This  accidental  discovery  and  issue  of  one-pound  notes, 
is  generally  acknowledged  to  have  saved  the  bank  from 
suspension  and  the  country  from  the  injurious  conse 
quences  that  would  have  followed,  and  yet  Parliament, 
at  its  next  session,  passed  an  act  prohibiting  all  issues 
of  notes  under  £5  after  1829  !  f 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  pp.  241-254. 

f  "  The  limitation  to  £5  in  England  is  a  disgrace  to  monetary  science 
and  commercial  practice  among  us.  We  have  never  heard  one  decently 
plausible  reason  assigned  for  it.  It  had  its  origin  in  the  alarm  created  by 
the  frequent  insolvency  of  banks  of  issue,  and  in  an  ignorance  of  currency 
which  threw  away  the  only  advantage  for  which  a  paper  currency  was  in 
vented.  Paper  was  designed  to  supersede  gold,  in  order  to  escape  the  ex- 


182  MONEY. 

The  issues  of  the  bank  were,  in  the  week  ending 

Dec.    3,  1825 £17,477,298 

"     10,     "     18,037,960 

"     17,     "     23,942,810 

"     24,     "     25,611,800 

"     31,     " 25,709,410 

Feb.  28,  1826 25,467,910* 

This  expansion  of  the  bank,  and  its  effects,  fully  sus 
tained  the  views  taken  by  the  celebrated  Bullion  Commit 
tee  of  the  House  of  Commons  in  1810,  who  stated  that 
it  was  the  duty  of  the  Bank  of  England  to  sustain  credit 
by  expanding  its  issues  in  moments  of  panic. 

"  The  highest  average  circulation  of  the  bank  in  the 
quarter  ending  31st  of  March,  1825,  when  the  specula 
tive  mania  was  at  its  height,  was  £21,OS4;470  ;  that 
of  the  quarter  ending  31st  of  August,  1826,  was  £21,- 
563,560,  and  the  bullion  £6,784,230;  and -the  quarter 
ending  28th  of  February,  1827,  was  £21,890,610,  and 
the  bullion  £10,159,020.  Thus,  with  a  circulation  larger 
than  it  had  been  at  its  highest  period  in  1825  (with 
the  exception  of  the  last  three  weeks  in  December), 
there  was  in  little  more  than  twelve  months  from  the 
nearly  complete  exhaustion  of  the  coffers  of  the  bank 
in  December,  1825,  such  a  state  of  the  exchanges  as 
raised  the  treasure  to  upward  of  10  millions."  f 

pense  of  the  metal ;  and  obviously  convenience  and  safety  of  payment  ought 
alone  to  restrict  the  use  of  paper.  The  theorists  who  talked  of  excessive 
issues,  naturally  set  their  faces  against  one-pound  notes ;  but  not  one  of 
them  has  ever  been  able  to  tell  the  world  why  the  Bank  of  England  should 
not  circulate  its  promises  to  pay  one  pound  on  demand  among  those  who 
trust  it,  or  why  a  banker  who  is  unsafe  for  issuing  one-pound  notes,  is  not 
unsafe  also  for  issuing  fives."  ("  What  is  Money  ?  "  North  British  Review, 
November,  1861.) 

*  Tooke,  History  of  Prices,  vol.  ii,  p.  188. 

f  Id.,  ib.,  p.  189. 


MO  N  E  Y.  183 

In  1844  was  passed  the  celebrated  Bank  Act  of  Sir 
Kobert    Peel.      Mr.   Tooke   calls  it  "  the  unwise    and 
mischievous  act  of  1S44."  *     It  divided  the  bank  into 
two  distinct  departments,   the  banking   and  the  issue 
departments.      Disregarding  the  important    fact   that 
circulation  should  vary  with  the  variations  in  the  oper 
ations  of  the  community,  the  bill  limited  the  issues  of 
the  bank  to  £14,000,000,  being  about  the  amount  of 
the  loans  of  the  bank  to  the  state.f      Sir  Kobert  Peel 
had  become  convinced  that  the  circulation  of  the  bank 
could  not  be  reduced  below  £14,000,000,  and  he  there 
fore  adopted  that   amount  as  the  maximum  issues  of 
notes  against   securities.     For  all  issues  beyond  that 
amount,  the  issue  department  was  to  receive  and  hold 
gold,   either    sovereigns    or   bullion,   to   an   equivalent 
amount,  the  idea  being  that  for  every  bank  note  issued 
beyond  that  amount,  a  similar  amount  of  gold  should 
be  withdrawn  from  the  circulation,  so  as  to  permit  the 
latter  to  be  further  expanded  by  nothing  but  gold.    "  All 
existing  banks  of  issue  were  to  be  at  liberty  to  continue 
to  issue  an  amount  not  exceeding  the  average  of  their 
issues  during  the  twelve  weeks  next  preceding  the  27th 
of  April,  1844.     If  two  or  more  banks  become  united, 
the  united  bank  may  issue  notes  to  the  aggregate  amount 
of  the  issues  of  each  separate  bank.     If  any  banker 
who  on  the  6th  of  May,  1844,  was  issuing  his  own  notes, 
should  cease  to  do  so,  it  is  lawful  for  the  crown  in  coun 
cil  to  authorize  the  bank  to  increase  its  issues  to  any 
amount  not  exceeding  two  thirds  of  the  amount  of  notes 

*  History  of  Prices,  vol.  iii,  p.  114. 

f  The  circulation  of  the  bank  in  1844  was  £14,475,000,  and  its  capital 
£14,553,000. 


184  MONEY. 

withdrawn  from  circulation  :*  all  profits  from  the 
issues  above  £14,000,000  to  go  to  the  state.  The  avowed 
object  of  the  act  of  1844  was  to  take  the  regulation  of 
the  currency  out*of  the  hands  or  even  the  power  of  the 
directors  of  the  Bank  of  England.  The  authors  of  the 
act  of  1844  nattered  themselves  that  for  every  five 
sovereigns  that  left  the  country,  a  five-pound  note  must 
be  withdrawn  from  circulation/'  f  "  sir  Robert  Peel 
deliberately  took  away  the  power  of  the  bank  to  act  in 
extreme  occasions,  under  the  impression  that  his  act 
would  prevent  these  extreme  occasions  from  occurring."  J 
The  object  of  the  bill  was  thus  stated  at  the  time  by 
Mr.  S.  J.  Lloyd  (afterward  Lord  Overstone),  the  great 
advocate  of  the  measure,  whose  views  had  been  adopted 
by  Sir  Eobert  Peel  and  incorporated  in  the  bill  :  "  con 
traction  of  circulation  is  to  be  made  precisely  coincident, 
as  regards  both  time  and  amount,  with  diminution  of 
the  bullion  ;  and  thus  it  is  conceived  that  the  danger 
of  total  exhaustion,  which  could  not  befall  a  metallic 
circulation,  will  be  rendered  equally  impossible  with 
respect  to  a  mixed  circulation  of  gold  and  paper/'  §  In 

*  "  There  is  no  reason  which  can  be  alleged  for  insisting  on  the  substitu 
tion  of  gold  or  of  Bank  of  England  notes  secured  on  a  deposit  of  gold,  for 
one  third  of  the  country  circulation  displaced  (he  should  have  said  discon 
tinued),  which  might  not  with  equal  force  be  urged  for  discarding  the  entire 
credit  currency  of  the  country  and  replacing  it  with  a  circulation  of  the 
metals."  (Fullarton  on  the  Regulation  of  Currencies,  p.  193.) 

f  Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  pp.  300-303. 

j  Id.,  ib.,  p.  299. 

§  Tooke,  History  of  Prices,  vol.  iii,  p.  282. 

"Col.  Torrens,  in  'An  Inquiry,'  &c.,  in  1844,  said:  'The  proposed 
system  will  effectually  prevent  the  recurrence  of  those  cycles  of  commercial 
excitement  and  depression  of  which  our  ill-regulated  currency  has  been  the 
primary  and  exciting  cause.  When  the  Government  plan  shall  have  been 


MONEY.  185 

other  words,  the  issues  of  bank  notes  in  England  were 
to  be,  thereafter,  governed  by  the  celebrated  "  currency 
principle,"  which  "shortly  stated  is  this — that  when 
bank  notes  are  permitted  to  be  issued,  the  number  in 
circulation  should  always  be  exactly  equal  to  the  coin 
which  would  be  in  circulation  if  they  did  not  exist. 
The  advocates  of  this  principle  maintain  that  it  is  the 
only  true  mode  of  regulating  a  paper  currency,  and  pre 
serving  the  paper  of  equal  value  with  the  gold  coin."  * 

carried  into  effect,  the  abstraction  of  £7,000,000  of  treasure  from  the  cof 
fers  of  the  bank,  in  a  period  of  nine  months,  will  be  morally  impossible. 
Had  the  system  existed  in  1838  and  1839,  it  would  have  been  utterly  im 
possible  that  the  drain  should  have  extended  to  £7,000,000.'  The  follow 
ing  figures  from  the  actual  returns  of  the  bank  under  the  act,  afford  a 
striking  illustration  of  the  correctness  of  these  views : 

12th  September,  1846,  bullion,  £16,350,000;  circulation,  £20,920,000 
24th  April,  1847,       "  9,210,000  "  20,690,000 


Decrease,  7,140,000  230,000" 

(Tooke,  History  of  Prices,  vol.  iii,  p.  283.) 

*  Mr.  James  Wilson  says :  "  These  principles  (the  currency  princi 
ples),  and  the  course  pursued  by  Sir  Robert  Peel,  necessarily  involve  the 
following  five  assumptions : 

"  First.  That  the  bank  notes,  though  payable  in  coin,  at  the  option  of  the 
holder,  are  still  liable  to  be  issued  in  excess,  and  are  consequently  subject 
to  depreciation. 

"  Second.  That  convertibility  is  not  alone  a  sufficient  guarantee  that  a 
mixed  currency  of  bank  notes  and  coin  shall  conform  in  its  variations  to 
the  same  laws  that  would  regulate  a  purely  metallic  currency. 

"  Third.  That  issuers  of  bank  notes  have  power  to  increase  or  decrease 
the  circulation  at  pleasure. 

"  Fourth.  That  by  an  expansion  or  contraction  of  the  issues  of  bank  notes 
at  pleasure,  the  prices  of  commodities  can  be  increased  or  diminished  ;  and, 

"  Fifth.  That  by  such  increase  or  diminution  of  prices,  the  foreign  ex 
changes  will  be  corrected,  and  an  undue  influx  or  efflux  of  bullion,  as  the 
case  may  be,  will  be  arrested."  (Id.,  ib.,  p.  261.) 

The  advocates  of  the  currency  principles  "  consider  that  a  purely  metal 
lic  circulation  (excepting  only  as  regards  the  convenience  and  economy  of 


186  MONEY. 

That  is  to  say,  the  only  proper  issues  of  bank  notes  are 
those  which  represent  an  "equivalent -amount  of  coin  in 
the  hands  of  the  issuers,  with  which  to  redeem  the  notes 
issued,  like  those  of  the  Banks  of  Amsterdam  and 
Hamburg.  According  to  these  views,  bank  notes  be 
ing  more  convenient  than  coin  for  large  commercial 
operations,  it  is  proper  and  advantageous  to  withdraw 
coin  and  substitute  in  its  place  an  equivalent  amount 
of  bank  notes.  But  to  use  bank  notes  instead  of  coin, 
as  counters  representing  commodities  and  services,  is 

paper)  is  the  type  of  a  perfect  currency,  and  contend  that  the  only  sound 
principle  of  a  mixed  currency  is  that  by  which  the  bank  notes  in  circulation 
should  be  made  to  conform  to  the  gold  into  which  they  are  convertible,  not 
only  in  value,  but  in  amount ;  that  is  to  say,  that  the  bank  notes,  being  a 
substitute,  and  the  only  substitute,  for  so  much  coin,  should  vary  exactly  in 
amount  as  the  coin  would  have  done  if  the  currency  had  been  purely  me 
tallic."  (Tooke,  History  of  Prices,  vol.  iii,  pp.  167,  168.) 

"  The  propoundcrs  of  the  theory  of  the  currency  principle  assume  and 
affirm  that  it  is  in  the  power  of  the  banks  to  act  directly  on  their  circula 
tion  ;  in  other  words,  that  they  can  and  do  exercise  a  direct  control  over 
the  quantity  of  paper  currency  which  they  define  to  be  bank  notes." 
(Id.,  ib.,  p.  171.) 

"  According  to  the  currency  principle,  the  golden  rule  to  be  observed 
in  the  management  of  the  circulation  is — that  in  conformity  to  the  assumed 
analogy  of  a  metallic  currency,  a  contraction  should  take  place  immediately 
on  the  commencement  of  a  drain,  and  be  continued,  pari  passu  with  the 
progress  of  the  drain,  until  the  drain  and  the  consequent  contraction  of  the 
circulation  should  so  have  reduced  prices  as  through  their  medium  to  have 
turned  the  foreign  exchanges — to  have  stopped  the  further  export  of  gold 
— and  to  have  superinduced  an  influx  of  it."  (Id.,  ib.,  vol.  v,  p.  589.) 

"  But  this  doctrine  (that  contraction  will  prevent  exports  of  bullion)  is 
built  upon  two  fallacies :  first,  that  prices  are  governed  by  the  expansions 
and  contractions  of  the  bank-note  circulation  ;  and,  secondly,  that  a  mode 
rate  reduction  of  prices  is  all  that  is  necessary  to  create  a  market  for  your 
commodities  in  foreign  countries."  (Fullarton  on  the  Regulation  of  Cur 
rencies,  p.  130.) 


^  MONEY.  187 

injurious  and  improper.  The  foundation  of  this  idea 
is  the  supposition  that  all  Lank  notes  are  ultimately 
redeemed  in  coin,  whereas  they  are  almost  all  redeemed 
by  being  paid  in,  in  payment  of  the  loans  which  led  to 
their  issue.  * 

The  act  of  1844  is  based  on  several  capital  errors. 
Upon  what  plea  should  the  issue  be  separated  from  the 
banking  department  ?  f  Why  should  not  the  supply 

*  "  The  mode  of  issue  of  bank  notes  is  invariably  through  the  medium 
of  loans  and  discounts.  .  .  .  The  reflux  (of  the  bank  notes)  takes  place 
chiefly  in  two  ways :  by  payment  of  the  redundant  amount  to  a  banker  on 
a  deposit  account,  or  by  the  return  of  notes  in  discharge  of  securities  on 
which  advances  have  been  made.  A  third  way  is,  that  of  a  return  of  the 
notes  to  the  issuing  bank  by  a  demand  for  coin.  The  last  seems,  in  the 
views  of  the  currency  theory,  to  be  the  only  way  by  which  a  redundancy, 
arising  from  the  unlimited  power  of  issue,  which  they  assume  to  exist,  ad 
mits  of  being  corrected  in  a  convertible  state  of  the  paper.  It  is  certainly 
the  one  least  in  use."  (Tooke,  History  of  Prices,  vol.  iii,  p.  185.) 

f  u  The  issue  department  is  acted  upon  by  the  public,  while  the  bank 
ing  department  acts  upon  the  public,  thus  producing  a  result  the  very  re 
verse  of  that  contemplated  by  the  propounders  of  the  scheme  of  separation. 
If  then  the  due  regulation  of  the  currency  depends,  as  it  undoubtedly  docs, 
upon  the  banking  department,  and  not  upon  the  issue  department,  it  is 
the  height  of  inconsistency  to  restrict  the  latter  and  to  leave  the  former 
entirely  at  the  discretion  of  the  directors."  (Id.,  ib.,  vol.  v,  pp.  546, 
547.) 

"  The  union  of  functions,  instead  of  being  incongruous  and  incompati 
ble,  as — most  gratuitously,  without  authority  or  proof  from  experience  or 
reasoning — they  are  held  to  be  by  the  currency  school,  would,  in  truth,  be 
eminently  conducive  to  congruity  of  interests,  and  harmony  or  perfect  com 
patibility  of  action.  Supposing  that  two  large  banking  establishments  had 
originally  been  formed  in  a  separate  state,  the  one  similar  to  the  present 
issue  department,  the  other  to  the  banking  department,  a  correct  view  to 
the  respective  interests  of  the  proprietors,  and  to  the  convenience  of  the 
public,  would  have  led  to  the  proposal  of  an  amalgamation."  (Id.,  ib.,  vol. 
v,  pp.  553,  554.) 

"  Mr.  George  Carr  Glyn,  in  his  evidence  before  the  committee  of  the 
House  of  Lords  in  1848,  said  he  had  been  of  opinion,  before  the  act 


188  MONET.  |T 

of  currency  be  in  proportion  to  the  demand  ?  If  issues 
beyond  £14,000,000  be  injurious,  why  not  also  those 
under  that  amount  ?  Are  state  stocks  proper  reserves 
with  which  to  redeem  bank  notes  payable  in  coin,  on 
demand  ?  *  If  a  bank  attempt  to  realize  state  stocks 
in  a  moment  of  embarrassment,  when  its  notes  are  being 
presented  for  redemption  in  coin,  can  their  realization 
fail  to  depreciate  sensibly  the  value  of  the  state  stocks 
and  thus  aggravate  existing  difficulties  ?  It  must  not 
be  forgotten  that  the  main  difficulty  in  moments  of  com 
mercial  crisis,  is  that  confidence  is  shaken  ;  most  hold 
ers  of  commodities  and  securities  become  eager  sellers  ; 
purchasers  are  not  to  be  found,  and  consequently  prop 
erty  cannot  be  realized,  and  thus  becomes  useless  as 
means  of  meeting  pressing  liabilities.  Had  Sir  Kobert 
Peel's  act  been  in  operation  in  1825,  the  bank  would, 
inevitably,  have  had  to  suspend  specie  payments.  That 
calamity  was  then  averted,  not  by  restricting,  but  by 
augmenting  the  issues  of  the  bank.  It  is  evident  that 
issues  of  paper  money  should  be  diminished  when  money 
is  abundant  and  interest  low,  and  augmented  when 
money  is  scarce  and  in  demand  and  interest  high.  The 
Bank  Act  of  1844  entirely  disregards  this,  and  forces  the 
bank  to  act  on  the  opposite  theory.  Mr.  Tooke,  Mr. 
Hawes,  M.  P.,  Mr.  Hastie,  M.  P.,  Lord  Ashburton,  Mr. 
John  Stuart  Mill,  Mr.  Fullarton,  and  Mr.  James  Wilson, 
editor  of  the  London  Economist,  all  predicted  the  failure 

passed,  that  the  division  of  the  bank  into  the  issue  and  banking  department 
was  a  desirable  experiment ;  but  after  the  experience  of  the  preceding  year, 
he  considered  that  it  had  decidedly  failed."  (Macleod,  Theory  and  Practice 
of  Banking,  vol.  ii,  p.  325.) 

*  "  The  issuing  of  notes  upon  the  public  funds  is  the  most  vicious  princi 
ple  possible."    (Id.,  ib.,  p.  302.) 


MONEY.  189 

of  the  act  of  1844,  and  that  instead  of  preventing  crises 
and  panics,  it  would  aggravate  them.  Tooke  said,  "  The 
theory  sought  to  be  explained  and  established  as  forming 
the  grounds  for  the  measure  of  1844,  is  in  every  point  of 
view  erroneous,  proceeding,  as  it  does,  on  an  ambiguous 
use  of  language,  on  unfounded  assumptions  of  principles 
and  facts,  and  on  false  analogies."  * 

"  In  August,  1846,  the  bullion  in  the  bank  amounted 
to  £16,366,000  with  discount  at  3  per  cent.  The  crops 
of  1846  proved  to  be  bad,  and  it  became  certain  that  an 
immense  quantity  of  bullion  would  require  to  be  ex 
ported  in  payment  of  the  grain  it  would  be  necessary 
to  import.  Accordingly,  from  the  middle  of  September, 
1846,  a  steady  and  continuous  drain  of  bullion  set  in, 
but  the  bank  made  no  alteration  in  the  rate  of  discount 
until  the  16th  of  January,  1847,  when  the  bullion  hav 
ing  fallen  to  £13,949,000,  it  raised  the  discount  to  3J- ; 
and  on  the  23d,  the  bullion  having  been  further  dimin 
ished  £500,000,  it  raised  the  rate  to  4  per  cent.  The 
drain  still  continued,  but  the  bank  made  no  further 
advance  in  the  rate  till  the  10th  of  April,  when  its 
treasure  being  reduced  to  £9,867,000,  it  raised  the  rate 
of  discount  to  5  per  cent.  By  the  division  of  the  bank 
into  two  distinct  departments,  the  public  saw  that  the 
whole  banking  resources  of  the  bank  were  reduced  to 
£2,558,000,  and  a  complete  panic  seized  both  the  public 
and  the  directors.  The  latter  adopted  measures  of  the 
most  unprecedented  severity  to  check  the  demand  for 
notes.  Merchants  who  had  received  loans  were  called 
upon  to  repay  them  without  being  permitted  to  renew 
them.  During  some  days  it  was  impossible  to  get  bills 

*  History  of  Prices,  vol.  iii,  p.  260. 


190  MONEY. 

discounted  at  all.  The  rate  of  discount  for  the  best  bills 
rose  to  9,  10,  and  12  per  cent.  During  all  this  time  the 
price  ofiuheat  continued  steadily  to  rise,  notwithstanding 
the  monetary  pressure.3' 

"  The  pressure  passed  off  after  the  first  week  in 
May,  having  lasted  about  three  weeks,  and  bullion  be 
gan  to  flow  in  after  the  24th  April,  until,  at  the  end  of 
June,  it  amounted  to  £10,526,000." 

"The  enormous  importations  of  breads  tuffs  in  May, 
June,  and  July,  coupled  with  the  very  favorable  ap 
pearance  of  the  harvest,  caused  a  heavy  and  continuous 
fall  in  the  price  of  grain  ;  the  price  of  wheat,  which,  at 
the  close  of  May,  had  been  as  high  as  131s.,  fell  to  49s. 
6d.  in  September.  This  was  attended  with  ruin  to  the 
houses  which  had  speculated  in  corn.  The  failures  in 
the  corn  trade  began  in  August,  the  miminum  rate  of 
discount  was  raised  to  5J-,  and  the  greater  part  of  the 
paper  discounted  was  charged  at  much  higher  rates, 
even  up  to  7  per  cent." 

"  On  the  9th  August  the  first  of  the  frightful  cata 
logue  of  failures  began.  Leslie,  Alexander  &  Co.  stop 
ped  payment  with  liabilities  amounting  to  £500;000. 
In  three  weeks  the  failures  were  £3,027;000.  Week 
after  week  followed,  each  one  increasing  in  severity,  until 
at  last  the  total  failures  exceeded  £15,000,000.  Al 
most  all  the  firms  connected  with  the  Mauritius  failed, 
principally  from  having  their  funds  locked  up  in  sugar 
plantations.  This  was  accompanied  by  immense  failures 
in  the  India  trade.  The  railway*  works  which  had  been 
sanctioned  in  the  session  of  1845-6,  were  now  in  full 
course  of  construction,  causing  an  immense  demand  for 
ready  money.  Almost  every  tradesman  in  the  kingdom 


MONEY.  191 

was  deep  in  railway  speculations.     Ever  since  the  26th 
June,  the  diminution  of  bullion  had  been  going  on  rap 
idly.     On  the  2d  October  it  was  reduced  to  £8,565,- 
000,    and  the  reserve  to   £3,409,000.     The   extreme 
pressure  may  be  considered  to  have  begun  on  the  23d 
September,    when   the   bank  adopted  more    stringent 
measures  for  curtailing  the  demand  upon  its  resources. 
On   the  2d   October  the  bank   gave  notice  that    the 
minimum  rate  on  all  bills  falling  due  before  the  15th 
October,   would  be  5i  per  cent.  ;  and  it   refused  al 
together  to  make  advances  on  stock  or  exchequer  bills. 
This  last  announcement  created  a  great  excitement  on 
the   stock  exchange.     The  town  and  country  bankers 
hastened  to  sell  their  public  securities  to  convert  them 
into  money.     The  difference  between  the  price  of  con 
sols  for  ready  money,  and  that  for  the  account  of  the 
14th  October,  showed  a  rate  of  interest  equivalent  to 
50  per  cent,  per  annum.     On  the   16th    October  the 
bank  rates  of  discount  varied  from  5J  to  9  per  cent.  At 
this  time  the  bullion  was  £8,431,000  ;  the  reserve  £2,- 
630,000.    The  following  week,  from  Monday,  the  18th, 
to  Saturday,  the  23d,  was  the  great  crisis.     On  that 
Monday,  the  Koyal  Bank  of  Liverpool,  with  a  paid-up 
capital  of  £800,000,  stopped  payment,  which  caused 
the  funds  to  fall  2  per  cent.     This  was  followed  by  the 
stoppage  of  the  North  and  South  Wales   Bank,  the 
Liverpool  Banking  Co.,  the  Union  Bank  of  Newcastle, 
heavy  runs  on  the  other  banks  in  the  district,  and  other 
bank  failures  at  Manchester  and  in  the  west  of  En<r- 

O 

land.  A  complete  cessation  of  private  discounts  follow 
ed.  No  one  would  part  with  the  money  or  notes  in  his 
possession." 


192  MONEY. 

"  The  continued  and  ever-increasing  severity  of  the 
crisis  caused  deputation  after  deputation  to  be  sent  to 
the  Government,  to  obtain  a  relaxation  of  the  act,  and 
on  Saturday,  the  23d  October,  the  final  determination 
of  the  ministry  to  authorize  the  bank  to  issue  notes 
beyond  the  limits  prescribed  t>y  the  act,  was  taken,  and 
communicated  to  the  bank,  who  immediately  acted  upon 
it,  and  discounted  freely  at  9  per  cent.  The  letter 
itself  (authorizing  the  bank  to  issue  notes  beyond  the 
limit  of  the  act)  was  not  actually  sent  till  Monday,  the 
25th.  No  sooner  was  this  letter  made  public,  than  the 
panic  vanished  like  a  dream  !  Mr.  Gurney  stated  that 
it  produced  its  effects  in  ten  minutes  !  No  sooner  was 
it  known  that  notes  might  be  had,  than  the  want  of 
them  ceased  !  Not  only  did  no.  infringement  of  the 
act  take  place,  but  the  whole  issue  of  notes  in  conse 
quence  of  this  letter  was  only  £400,000  ;  so  that  while 
at  one  moment  the  whole  credit  of  Great  Britain  was 
in  imminent  danger  of  total  destruction,  within  one 
hour  it  was  saved  by  the  issue  of  £400,000.* 

*  Macleod,  Theory  and  Practice  of  Banking,  vol.  55,  pp.  306-314. 

"  Nothing  could  shake  the  steady  resolve  of  the  Government  to  main 
tain  the  restrictions  of  the  act  of  1844,  until  the  London  bankers  had  a 
meeting  on  Friday,  22d  October,  at  which  it  was  agreed  that,  if  Government 
would  not  sanction  a  deviation  from  the  act  on  the  part  of  the  bank,  they 
would  withdraw  their  whole  balances  from  it.  This  was  decisive.  The 
bankers'  balances  in  the  Bank  of  England  were  £1,774,472,  and  the  reserve 
in  the  bank  to  meet  this  amount  was  only  £1,600,025.  The  bankers'  reso 
lution  was  communicated  to  Government  on  Saturday,  the  23d,  and  early  on 
Monday,  the  25th,  the  celebrated  letter,  signed  by  Lord  John  Russell  and 
the  Chanceller  of  the  Exchequer  was  sent  to  the  bank,  authorizing  a  devia 
tion  from  the  act.  The  bank  was  authorized  to  issue  notes  beyond  the 
limit  prescribed  by  the  act,  at  a  rate  of  discount  fixed  at  eight  per  cent." 
(Alison's  History  of  Europe,  vol.  viii,  p.  109,  American  edition.) 

Mr»Hubbard,  Governor  of -the  Bank  of  England,  said  on  his  examina- 


MONEY.  193 

"  Thus  did  the  famous  Bank  Charter  Act,  after  hav 
ing  been  three  years  in  unrestrained  operation,  break 
down  from  the  effect  of  its  own  provisions,  but  not  until 
it  had  brought  the  country  to  the  very  verge  of  ruin. 
Three  months  after  Lord  John  KusselPs  letter  was 
written,  the  rate  of  discount  was  lowered  to  4  per  cent., 
a  decisive  proof  that  the  previous  high  rates  had  been  en 
tirely  owing  to  a  want  of  currency,  and  not  of  capital." 

"  The  common  opinion  is,  that  if  there  is  an  over 
issue  of  bank  notes,  it  will  drive  the  gold  out  of  the 
country.  That  was  the  fundamental  position  of  the 
famous  bullion  report  in  1811,  and  it  has  been  the  basis 
of  all  our  subsequent  legislation  on  the  subject.  But 
in  this  case  the  very  reverse  took  place  ;  for  when  it  was 
known  that  notes  would  be  freely  issued,  hoards  of  gold 
immediately  made  their  appearance,  and  the  stock  of 
bullion  in  the  bank  instantly  began  to  increase." 

"  The  effect  of  the  infraction  of  the  law.  according 

o 

to  the  Chancellor  of  the  Exchequer's  statement,  was 
altogether  magical  ;  the  whole  panic  ceased  ;  the  notes 
came  out.  the  gold  came  in,  all  at  the  same  time,  and 
confidence  was  at  last  restored,  all  in  consequence  of 
the  announced  violation  of  the  Bank  Act.  Apparently, 
that  is  an  act  honored  more  in  the  breach  than  the  ob 
servance  ;  but  what  is  to  be  said  in  defence  of  an  act 
which  never  proves  beneficial  till  it  is  repealed  ?  "  * 
"  The  crisis  of  1847  was  unlike  any  other  that  had 

tion  before  a  committee  of  the  House  of  Commons  in  1848  :  "  The  limita 
tion  of  paper  issues  is  the  very  essence  of  the  act  of  1844.  And  as  limit 
ation  operates  sensibly  only  under  circumstances  of  pressure,  it  is  obvious 
that  to  evade  its  stringency  because  a  pressure  is  felt,  is  simply  to  stultify 
the  act." 

*  Bankers'  Magazine,  New  York,  January,  1863,  p.  537. 
9 


194  MONEY. 

ever  occurred,  and  well  illustrated  the  working  of  the 
new  law  on  the  subject.  There  was  no  overtrading ; 
there  was  no  commercial  embarrassment  irrespective  of 
the  monetary  pressure  ;  the  credit  of  the  Bank  of  Eng 
land  was  above  suspicion  ;  there  was  no  run  upon  the 
other  banks  ;  capital  was  abundant  and  more  than 
equal,  as  the  events  of  the  following  years  demonstra 
ted,  to  all  the  undertakings  which  were  in  hand  or  in 
contemplation.  There  was  simply  and  only  a  want  of 
currency  to  make  the  advances  with,  because  the  bank, 
restrained  by  the  act  of  1844,  could  not  lend  money 
with  a  few  hundred  thousand  pounds  only  in  the  bank 
ing  department,  though,  in  the  other  end,  they  had 
above  £8,000,000  in  the  issue  department."  * 

Sir  Kobert  Peel  himself  said,  in  the  parliamentary 
debates  of  1848  :  "  The  bill  of  1844  had  a  triple  object. 
Its  first  object  was  that  in  which  I  admit  it  has  failed, 
namely,  to  prevent,  by  early  and  gradual,  severe  and 
sudden  contraction,  and  the  panic  and  confusion  in 
separable  from  it."  f 

*  Alison's  History  of  Europe,  vol.  viii,  chap,  xliii,  p.  100,  American 
edition. 

"  With  upward  of  £16,000,000  bullion  in  hand,  the  bank,  when  called 
upon  to  meet  a  drain  for  foreign  payment,  the  actual  extent  of  which  did 
not  reach  nearly  half  that  amount,  and  which,  in  all  probability,  would 
not,  under  the  least  vigilant  management  conceivable,  have  reached  £10-, 
000,000,  found  itself  so  crippled  by  the  arbitrary  separation  of  its  depart 
ments,  that  the  directors  were  under  the  necessity  of  resorting  to  measures 
more  severely  restrictive  of  commercial  credit  than  any  that  had  been 
known  since  1796-1(7."  (Tooke,  History  of  Prices,  vol.  in,  pp.  399,  400.) 

f  Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  p.  320. 

Lord  Ashburton  said,  in  1848,  in  his  Financial  or  Commercial  Crisis  Con 
sidered  :  "  The  expectations  entertained  of  this  infallible  panacea  (the  act  of 
1844)  were  unfounded— it  would  only  work  in  fair  weather,  when  restrict 
tions  of  all  sorts  are  inoperative  and  immaterial— it  could  not  fail  to  break 


MONEY.  195 

He  insisted,  however,  that  it  had  greatly  contribut 
ed  to  maintain  the  convertibility  of  the  bank  notes  into 
specie.  But  the  able  author  of  the  article  "  What  is 
Money  ?"  in  the  North  British  Review,  November,  1861, 
says  very  well :  "  The  loud  preaching  on  the  necessity 
of  protecting  the  convertibility  of  the  paper  currency, 
which  ushered  in  the  act  of  1844,  was  absurd  ;  it  was 
a  cry  for  medicine  for  a  healthy  man.  No  one  ever 
felt  uneasy  about  the  payment  of  the  notes  ;  but  many 
trembled  at  the  peril  of  not  obtaining  discount  for  their 
bills." 

Tooke  closes  his  review  of  the  Bank  Act  of  1844  and 
of  the  crisis  of  1847  as  follows  :  *  "  As  the  result  of  a 

down  under  the  first  difficulty — and  it  is  in  fact  a  serious  aggravation,  if  not 
indeed  the  actual  cause  of  the  distress  we  now  experience." 

"  Now  this  fright  of  the  bank,  with  ten  millions  in  her  coffers,  of  viola 
ting  this  parliamentary  restraint,  has  driven  her  into  proceedings  which 
have  depreciated,  to  a  very  great  extent,  every  description  of  property,  food 
only,  for  evident  reasons,  excepted.  It  must  not  be  easy  to  estimate  this 
depreciation,  extending  over  all  merchandise,  stocks,  railroad  shares,  &c. ; 
it  probably  would  not  have  been  overstated  at  from  ten  to  twenty  per  cent. 
But  what  is  worse,  it  has  paralyzed  this  property  in  the  hands  of  the  pos 
sessors,  rendered  it  unavailable  toward  meeting  their  engagements,  and 
thus  produced,  in  many  cases,  pecuniary  sacrifices,  much  beyond  the  mere 
depreciation  of  the  value  of  the  property  itself.  It  has  further  occasioned 
the  suspension  of  the  execution  of  orders  from  our  customers  in  every  quar 
ter,  thus  distressing  manufacturers,  and  impeding  those  very  operations 
which  would  have  corrected  the  tendency  to  an  unfavorable  balance  of 
trade,  and  given  safety  to  the  circulation  of  the  bank."  (Tooke,  History  of 
Prices,  vol.  iii,  p.  306.) 

John  Horsley  Palmer,  Esq.,  and  Samuel  Gurney,  Esq  ,  testified,  in  1848, 
before  a  committee  of  the  House  of  Commons,  that  the  crisis  of  1847  was, 
in  their  opinion,  entirely  caused  by  the  restrictions  of  the  act  of  1844. 
Charles  Turner,  Esq.,  of  Liverpool,  testified  before  the  same  committee, 
that  in  his  opinion,  had  the  act  not  been  suspended,  universal  bankruptcy 
would  have  been  the  issue. 

*  History  of  Prices,  vol.  iii,  pp.  401,  402. 

"  The  whole  scheme  (Bank  Act  of  1844)  in  truth  is  built  upon  assump- 


196  MONEY. 

careful  examination  of  the  principle  on  which  the  act  of 
1844  was  founded,  and  of  the  experience  of  its  working 
since  the  time  when  it  came  into  operation,  I  have  no 
hesitation  in  giving  it  as  my  opinion  that  it  is  a  total, 
unmitigated,  uncompensated,  and,  in  its  consequences,  a 
lamentable  failure/7  And  he  recommends  u  a  total  ab 
rogation  of  those  provisions  of  the  acts  of  1844  and  18^5 
which  limit  the  amount  of  the  note  circulation  and  sep 
arate  the  function  of  issue  from  that  of  banking  in  the 
business  of  the  Bank  of  England." 

The  rapid  and  injudicious  contraction  of  the  discounts 
of  the  New  York  city  banks  in  September  and  October 
1857,  produced  a  financial  crisis  in  the  United  States 
which  reacted  with  great  severity  on  Europe.  "  At  the 
commencement  of  the  year,  the  aspect  of  monetary 
affairs  seemed  to  promise  a  long  period  of  commercial 
ease.  But  subsequently,  the  outbreak  of  the  mutiny 
in  India,  the  consequent  suspension  of  remittances  from 
that  quarter,  and  the  inverse  demand  for  specie,  and  a 
constant  efflux  of  the  precious  metals  from  other  causes  ; 
the  demand  for  capital  to  supply  the  military  materials 
to  the  Government  and  the  East  India  Company  ;  all 
these  causes  produced  a  depressing  effect  on  the  funds. 
In  August  consols  fell  to  90,  being  lower  than  at  any 
time  since  January,  1856,  during  the  pressure  of  the 
Russian  war." 

"  Early  in  October  monetary  disaster  loomed  in  the 
distance.  The  American  mails  brought  tidings  of  the 
stoppage  of  banks  of  high  standing  and  vast  circulation,, 
and  of  the  failure  of  mercantile  houses.  On  the  receipt 

tions  which  will  not  bear  the  test  of  examination."  (Fullarton  on  the  Regu 
lation  of  Currencies,  p.  113.) 


MO  KEY.  197 

of  these  evil  tidings,  the  Bank  of  England  raised  the 
rate  of  discount  from  5.V  to  6  percent.;  on  the  12th  of 
October,  it  further  raised  it  to  7  per  cent.,  on  the  19th 
to  8  per  cent.  On  the  27th  of  October,  a  great  shock 
to  public  credit  and  a  consequent  demand  on  the  Bank 
of  England  for  discounts  arose  from  the  failure  of  the 
Liverpool  Borough  Bank,  (not  a  lank  of  issue.)  with 
liabilities  to  the  extent  of  £5,000,000,  and  whose  re- 
discounted  bills  were  largely  held  by  the  bill  brokers 
and  others  in  London.  On  the  4th  of  November,  the 
rate  of  discount  was  further  advanced  by  the  bank  to 
9  per  cent. — an  unprecedented  rate,  for  when  the  bank 
act  was  suspended  in  1847,  the  then  rate,  which  was 
also  the  rate  stipulated  by  the  Government,  was  8  per 
cent.  The  bullion,  which  was  on  the  10th  of  October 
£10,110,000,  was  now  only  £7,919,000.  By  this  time, 
however,  the  Continental  drain  for  gold  had  ceased,  the 
American  demand  had  become  unimportant,  and  there 
was  little  apprehension  that  the  bank  issues  would  be 
inadequate  to  meet  the  necessities  of  commerce,  within 
the  legalized  sphere  of  their  circulation." 

"  Upon  this  state  of  things  supervened,  on  the  7th  of 
November,  the  failure  of  Dennistoun  &  Co.,  with  lia 
bilities  of  £2,000000,  and  on  the  9th,  that  of  the 
Western  Bank  of  Glasgow,  with  liabilities  between  6  and 
7  millions,  when  the  rate  of  discount  was  advanced  by 
the  bank  to  13  per  cent.!  On  the  llth,  was  received 
the  news  of  the  failure  of  the  City  of  Glasgow  Bank, 
with  liabilities  of  £6,000,000,  which  was  followed  by  the 
suspension  of  the  large  discount  firm  of  Sanderson 
Sandiman  &  Co.,  of  London,  for  £5,500,000.  All  this, 
find  a  renewed  discredit  in  Ireland,  caused  the  abstrac- 


198  MONEY. 

tion  from  the  bank  vaults,  in  four  weeks,  of  upward  of 
two  millions  of  gold  to  supply  the  wants  of  Scotland  and 
Ireland  ;  of  which  amount  more  than  one  million  was 
sent  to  Scotland  and  £280,000  to  Ireland  between  the 
5th  and  12th  of  November.  This  drain  was  in  its  na 
ture  sudden  and  irresistible,  and  acted  necessarily  on  the 
reserve,  which  on  the  llth  of  November  had  decreased 
to  £1,462,000  and  the  bullion  to  £6,666,000.  The 
public  had  become  alarmed,  large  deposits  accumulated 
in  the  Bank  of  England,  money  dealers  having  vast 
sums  lent  to  them  upon  call  were  themselves  obliged  to 
resort  to  the  Bank  of  England  for  increased  supplies, 
and  for  some  days  nearly  the  whole  requirements  of 
commerce  were  thrown  on  the  bank,  when  on  the  12th 
of  November  the  Government  authorized  the  bank  to 
disregard  the  restriction  of  the  bank  act.  The  effect 
was  the  same  as  in  1847.  On  the  12th,  the  bank  dis 
counted  and  advanced  to  the  amount  of  £2,373,000, 
which  still  left  a  reserve  of  £581,000.  The  demand 
for  discounts  and  advances  continued  to  increase  till  the 
21st,  when  they  reached  the  maximum  of  £21,616,000. 
The  panic  rapidly  subsided,  and  notwithstanding  com 
mercial  failures  of  immense  magnitude,  the  crisis  passed 
over  without  the  prostration  of  our  commercial  existence. 
The  bullion  reached  its  lowest  point  on  the  18th  of 
November,  £6,484,000.  The  issues  beyond  the  legal 
limit  were  only  £928.000.  On  the  1st  December,  the 
overissue  had  been  returned  to  the  issue  department, 
having  averaged,  during  the  eighteen  days,  only  £488,- 
830." 

The  failures  exceeded  £41,000,000,  whose   deficits 
were  estimated  at  £7,754,900.     That  the  crisis  was  not 


0  N  E  Y. 


199 


due  to  overissues  of  bank  notes  is  self-evident  by  the  fact 
that  the  entire  circulation  of  the  United  Kingdom  in 
1857  was,  in  round  numbers,  only  £38,000,000,  whereas 
in  1815  it  amounted  to  £58,771,000.  The  Liverpool 
Borough  Bank  was  not  a  bank  of  issue,  and  the  entire 
issues  of  the  Western  Bank  of  Scotland  and  the  City  of 
Glasgow  Bank,  were  only  £800,000,  against  deposits  of 
£9,000,000.  In  the  debates  that  occurred  in  Parliament, 
Mr.  Spooner  attributed  all  the  monetary  derangements 
and  commercial  embarrassments  to  the  act  of  1844, which 
he  declared  to  be  a  delusion.  "  It  had  answered  none  of 
the  expectations' held  out  by  its  promoters — it  could  not 
be  amended  and  must  be  abolished."  Mr.  Glyn  differed 
from  Mr.  S.  as  to  the  effect  of  the  act  of  1844  upon  the 
commercial  crisis,  .  .  .  but  although  the  pressure  was 
not  caused  by  the  act,  the  limitation  of  issues  by  the 
bank  became,  in  his  opinion,  in  the  time  of  pressure, 
the  primary  cause  of  the  crisis.0 
The  position  of  the  bank  was  : 


J. 

Private 

Rate  of 

Circulation. 

Bullion. 

Securities. 

Discount. 

27th  June, 

£19,819,721 

£11,378,872 

£18,987,886 

6 

llth  July, 

20,702,903 

11,592,160 

16,455,171 

6i 

29th  Aug., 

20,108,234 

11,500,587 

17,811,663 

6* 

3d  Oct., 

20,824,714 

10,662,692 

21,835,843 

6 

10th     " 

20,862,690 

10,109,943 

22,398,877 

7 

17th     " 

21,052,315 

9,524,478 

20,539,565 

8 

4th  Nov., 

21,071,942 

8,497,780 

22,628,251 

9 

llth     " 

21,036,430 

7,170,508 

26,113,453 

10 

18th     " 

22,235,954 

6,484,096 

30,299,270 

10 

25th     « 

22,156,143 

7,263,672 

31,350,717 

10 

9th  Dec., 

20,953,992 

8,069,489 

30,111,185 

10 

23d      " 

20,133,558 

10,753,281 

28,088,186 

8 

We  find  here  that  as  the  bullion  decreased,  the  cir- 

*  Annual  Register,  1857. 


200  MONEY. 

dilation  and  loans  of  the  bank  increased,  and  vice  versa, 
the  very  reverse  of  the  theory  on  which  the  act  of  1844  is 
based  (and  of  the  result  it  was  intended  to  produce), 
which  is  that  circulation  and  loans  will  diminish  as 
bullion  diminishes,  and  increase  as  bullion  increases. 

The  London  Economist  of  28th  November,  1857, 
says  :  "From  1819  down  to  the  present  time  there  is 
no  element  in  the  banking  statistics  of  this  country 
which  presents  such  uniformity  as  that  of  the  bank  cir 
culation.  The  most  fluctuating  elements  in  our  bank 
ing  accounts  are  the  amount  of  bullion  held  in  reserve 
by  the  bank,  and  the  amount  of  capital  (credit  ?)  ad 
vanced  upon  private  securities  to  traders.  While  circu 
lation  is  most  stationary,  the  quantity  of  capital  (cred 
it  ?)  unemployed  and  employed  is  most  fluctuating.  In 
1825  the  crisis  broke  out  among  the  London  bankers 
who  issued  no  notes — in  Liverpool  it  was  most  severely 
felt  where  notes  had  never  been  issued  by  any  of  the 
banks." 

"  But  if  we  turn  from  these  scenes  of  disaster  in 
England  to  kindred  events  on  the  Continent,  what  do  we 
find  ?  Why,  that  on  the  spot  most  afiected — where 
the  losses  are  greatest — where  the  panic  is  most  severe — 
where,  as  far  as  facts  have  yet  been  divulged,  there 
exists  the  strongest  presumption  that  speculation  of  a 
reckless  kind  has  been  carried  to  the  greatest  extent, — 
there  is  no  paper  circulation  at  all,  but  that  it  is  one  of 
the  only  places  in  Europe  which  boasts  a  purely  metallic 
currency  : — we  mean  the  Republic  of  Hamburg.  There 
the  rate  of  interest  has  fluctuated  more,  and  upon  the 
whole,  been  higher  than  in  any  other  part  of  Europe  ; 
and  to  such  an  extent  has  discredit  spread,  that  the 


MONEY.  201 

public  at  large  has  been  obliged  to  unite  and  form  a 
guarantee  fund,  in  order  to  save  the  commercial  com 
munity  from  common  ruin  arising  from  panic  and  dis 
trust."  *  One  hundred  and  sixty  houses  suspended 
payments  in  Hamburg.  Interest  there  was,  in  October, 

7-|  per  ct.,  while  it  was  6  per  ct.  in  London, 

9         "          "         "        7         <:         "  6£  per  ct.  in  Paris. 

8£       "  "         "         8         «         "  H        "         "       t 

As  the  crisis  in  England  was  in  a  great  measure  due 
to  the  crisis  which  originated  in  New  York,  it  becomes 
interesting  to  examine  the  condition  of  the  New  York 
banks.  We  find  the  following  in  the  London  Econo 
mist  of  the  26th  of  December,  1857  : 

"  Condition  of  the  banks  of  the  State  of  New  York  in 

June,  1852.  June,  1856.  Sept.,  1857. 

Capital,                      $59,705,000  $92,334,000  $107,507,000 

Circulation,                  27,940,000  30,705,000  27,122,000 

Deposits,                      65,634,000  96,267,000  84,529,000 

Loans  and  Discounts,127,245,000  174,141,000  170,846,000 

Specie,                         13,304,000  18,510,000  14,321,000 

"If  ever  there  were  accounts  which  exhibited 
moderate  and  prudent  banking  we  find  them  in  these 
returns,"  says  the  London  Economist.  What  a  comment 
on  the  hasty  and  injudicious  action  of  the  New  York 
banks,  which,  when  in  a  condition  declared  by  the  highest 

*  London.Economist,  28th  November,  1857. 

•f-  "It  is  a  favorite  doctrine  with  some  persons  that  it  is  impossible  to  have 
an  undue  extension  of  credit  with  a  purely  metallic  basis,  and  that  an  im 
proper  issue  of  bank  notes  is  the  sole  cause  of  too  great  an  expansion  of 
credit,  just  as  if  the  currency  being  made  of  metal  could  prevent  people 
from  giving  their  '  promises  to  pay,'  and  buying  up  goods  on  speculation.'* 
(Macleod,  Theory  and  Practice  of  Banking,  vol.  ii,  p.  58.) 

9* 


202  MONEY. 

authority  in  England,  moderate  and  prudent,  at  the 
very  moment  that  the  boundless  crops  of  our  fertile  soil 
were  coming  forward  to  arrest  the  drain  of  specie,  pro 
duced  a  panic  by  an  unnecessary  curtailment  of  loans, 
that  carried  disaster  and  destruction  to  the  commerce 
of  two  continents  ! 


CHAPTEK    XI. 

SIR  EGBERT  PEEL'S  act  of  1844  was  entirely  based  on 
the  idea  that  all  speculations,  and  the  commercial  re 
actions  that  follow  them,  are  caused  by  expansions  of 
the  currency — in  other  words,  on  the  almost  universally 
admitted  theory  that  the  volume  of  the  currency  is  the 
measure  of  values — that  an  increase  in  the  volume  of 
the  currency  produces  a  rise  of  prices,  and  a  decrease  a 
fall  of  prices.  This  theory  is  correct  if  the  term  cur 
rency  be  made  to  include  bank  deposits  and  the  checks 
drawn  against  them,  bills  of  exchange,  notes  of  hand, 
credits  of  every  description;  in  one  word,  everything  that 
causes  property  to  pass  from  hand  to  hand  ;  everything 
that  increases  the  demand  for  it.  But  it  is  entirely 
erroneous  if  the  term  currency  be  intended,  as  is  almost 
invariably  the  case,  to  include  only  coin  and  bank 
notes.*  In  that  sense  the  theory  is  not  only  erroneous 

*  "The  act  of  1844  treats  currency  simply  as  bank  notes  to  bearer; 
but  they  who  observe  critically  and  carefully  all  the  varied  mazes  of  our 
moneyed  transactions,  must  recognize  an  almost  endless  variety  of  objects 
acting  more  or  less  directly  and  with  more  or  less  celerity  the  same  part- 
bills  of  exchange  at  long  or  short  dates — exchequer  bills — India  and  rail 
road  bonds — deposits  on  demand  with  the  great  money  brokers — latterly, 
post-office  orders  for  small  sums  passing  from  town  to  town,  of  which  useful 
description  of  quasi  currency  the  public  will  probably  be  surprised  to  learn 
that  little  short  of  £6,000,000  were  circulated  last  year— but  above  all, 


204 


MONET. 


now,  but  was  so  even  before  bank  notes  and  commercial 
credits  were  used,  for  then  barter  was  an  important 
element  in  the  exchanges  of  commodities,  and  permitted 

deposits,  both  with  the  Bank  of  England  and  private  bankers,  are  a  most 
essential  part  of  this  currency;  .  .  .  they  are  in  fact  the  most  formida 
ble  means  of  commanding  the  treasures  of  the  bank,  though  they  seem  to 
be  wholly  overlooked  by  our  exclusive  guardians  of  the  currency. 
The  theorist  sees  in  circulation  nothing  but  the  bank  notes  ;  but  the  prac 
tical  man,  engaged  in  large  operations,  knows  how  many  millions  pass 
through  his  hands  without  his  seeing  or  touching  a  bank  note,  and  how 
many  varied  securities  and  engagements  perform  the  essential  duties  of  his 
circulation."  (The  Financial  or  Commercial  Crisis  Considered,  by  Lord 
Ashburton.) 

"  Whatever  confers  the  power  of  demanding  services  or  commodities,, 
or  professes  to  confer  the  power  of  demanding  them,  is  the  currency  or  cir 
culating  medium  of  any  single  person,  and  includes  not  only  the  current 
coin  of  the  realm,  but  all  its  substitutes  of  every  description,  and  whatever 
else  represents  or  displaces  it.  Adopting  this  definition,  we  may  enumerate 
the  different  species  of  it  as  follows-: 

"  1.  Coined  money,  gold  silver  and  copper. 
"  2.  Bills  of  exchange,  including  checks. 
*'  3.  Promissory  notes,  Including  bank  notes. 
"  4.  The  sum  standing  at  his  credit  in  his  banker's  books, 
"  5.  Private  debts  due  him."  (Macleodr  Theory  and  Practice  of  Banking,, 
vol.  i,  p.  3Y.) 

"  "Rut  as  the  relations  of  commerce  extend  themselves,  and  nations  ad 
vance  in  industry  and  wealth,  credit  becomes  gradually  a  more  and  more 
important  engine  in  the  mechanism  of  the  social  system,  and  men  begin  ere 
long  to  discover  that,  by  the  simple  intervention  of  credit  alone,  nine  tenths 
of  their  transactions  of  purchase  and  sale  may  be  conveniently  and  econom 
ically  adjusted,  without  any  interchange  whatever  of  actual  value,  whether 
Intrinsic  or  factitious.  Hence  the  introduction  Into  use  of  the  bank  note. 
But  the  bank  note  is  only  one,  and  scarcely  even  the  most  important,  of  the 
various  forms  in  which  credit  may  be  employed  to  facilitate  exchanges. 
And  you^  cannot,  therefore,  include  the  bank  note  under  the  generic  desig 
nation  of  money,  without  finding:  yourself  immediatelv  embarrassed  by  the 
claims  of  bills  of  exchange,  bankersT  checks,  and  a  variety  of  other  typifica- 
tions  of  the  same  principle  of  credit,  all  of  which  being  more  or  less  compe 
tent  to  perform,  and,  in  point  of  fact,  performing  the  functions  of  money, 
and  some  of  them  on  a  scale  of  vast  extent,,  have,,  prima  facie,  just  the 


MONEY.  205 

the  demand  to  be  greater  than  the  existing  amount  of 
money  coull  exchange.  If  the  mere  increase  of  the 
currency  cou!d  affect  prices,  values  would  not  depend 
on  natural  laws,  but  on  man's  action. 

same  pretensions  to  be  rated  as  money  which  bank  notes  have."  (Fullarton 
on  the  Regulation  of  Currencies,  p.  29.) 

"  There  is  scarcely  any  shape  into  which  credit  can  be  cast,  in  which  it 
will  not  at  times  be  called  to  perform  the  functions  of  money  ;  and  whether 
that  shape  be  a  bank  note,  or  a  bill  of  exchange,  or  a  banker's  check, 
the  process  is  in  every  essential  particular  the  same,  and  the  result  is  tiie 
same."  (Id.,  ib.,  p.  37.) 

"  The  purchasing  power  of  an  individual  at  any  moment  is  not  measured 
by  the  money  actually  in  his  pocket,  whether  we  mean  by  money  the 
metals,  or  include  bank  notes.  It  consists,  first,  of  the  money  in  his  pos 
session  ;  secondly,  of  the  money  at  his  banker's,  and  all  other  money  due  to 
him  and  payable  on  demand ;  thirdly,  of  whatever  credit  he  happens  to 
possess.  To  the  full  measure  of  this  threefold  amount,  he  has  the  power 
of  purchase.  How  much  he  will  employ  of  this  power,  depends  upon 
his  necessities,  or  upon  his  expectations  of  profit.  Whatever  portion  of  it 
he  does  employ,  constitutes  his  demand  for  commodities,  and  determines 
the  extent  to  which  he  will  act  on  prices. "  (J.  S.  Mill,  Westminster  Review, 
June,  1844.) 

"  We  shall  not  hesitate  to  adopt  some  such  classification  of  the  con 
stituent  parts  of  the  whole  volume  of  negotiable  instruments  at  present  in 
use  in  this  country  as  the  following : 

"  I,  coin;  2,  bank  notes;  3,  checks;  4,  bills  of  exchange;  5,  ledger 
accounts.  And  to  admit  the  substantial  correctness  of  a  doctrine  which 
teaches  in  effect  that  coin  is  the  small  change  of  bank  notes  ;  bank  notes 
tha  small  change  of  checks ;  checks  the  small  change  of  bills  of  ex 
change;  and  bills  of  exchange  the  small  change  of  transactions  of  sale  and 
purchase,  the  record  of  which  is  contained  in  a  ledger,  and  the  adjustment 
of  which  is  accomplished  mainly  by  the  process  of  set-off."  (Tooke,  His 
tory  of  Prices,  vol.  vi,  pp.  593,  594.) 

"  If  it  be  an  undeniable  fact,  that  nine  tenths,  or  some  other  very  large 
proportion  of  all  the  transactions  of  purchase  and  sale  which  take  place  in 
the  kingdom  are  adjusted  without  the  intervention  of  money  properly  so 
called  at  all,  and  by  the  use  of  other  expedients  of  credit  than  bank  notes; 
and  if,  lastly,  the  supply  of  some  of  those  expedients  of  credit  is  increasing 
and  inexhaustible,  utterly  beyond  the  reach  of  legal  restraint,  and  never 


206  MONEY. 

But  although  every  representative  of  money  and 
commodities  is  capable  of  performing,  and  does  perform 
at  times,  the  functions  of  money,  it  is  not  always  a 
portion  of  the  currency.  Fullarton  says  very  well : 
"  Every  instrument  of  exchange  produces  no  effect  on 
prices  as  long  as  not  used  to  effect  purchases.  All  in- 
denied  to  any  one  who  has  occasion  to  use  them  and  value  to  give  for  them, 
stronger  evidence  surely  cannot  well  be  desired  or  imagined  of  the  utter 
hopelessness  of  any  attempt  to  control  those  purchases  and  sales,  or  the 
fluctuations  of  value  which  they  engender,  or  by  any  officious  tampering 
with  the  free  supply  of  so  comparatively  insignificant  a  portion  of  the  whole 
mass  of  circulating  credit  as  the  bank  notes,  and  that  portion  the  least  of 
any  in  affinity  with  the  great  operations  of  trade  by  which  the  course  of 
prices  and  exchanges  is  really  directed."  (Fullarton  on  the  Regulation  of 
Currencies,  p.  51.) 

"  '  The  circulation  of  every  country  may  be  considered  as  divided  into 
two  different  branches — the  circulation  of  the  dealers  with  one  another,  and 
the  circulation  between  the  dealers  and  consumers.  .  .  .  The  value  of 
the  goods  circulated  between  the  different  dealers  with  one  another  can 
never  exceed  the  value  of  those  circulated  between  the  dealers  and  the  con 
sumers,  whatever  is  bought  by  the  dealers  being  ultimately  destined  to  be 
sold  to  the  consumers.'  (Smith's  Wealth  of  Nations,  pp.  141,  142.)  "  Coin, 
and  the  smaller  denomination  of  notes  serving  as  coin,  are  essential  to  the 
exchanges  between  dealers  and  consumers,  and  if  these  smaller  notes  are 
withdrawn,  their  place  must  be  supplied  by  coin  ;  but  not  so  as  regards  the 
interchange  between  dealers  and  dealers.  Bank  notes  are  not  only  not 
essential  to  that  interchange,  but  in  point  of  fact,  bank  notes  are  rarely 
used  in  the  larger  dealings  of  sales  and  purchases.  All  the  transactions 
between  dealers  and  dealers,  by  which  are  to  be  understood  all  sales  from 
the  producer  or  importer,  through  all  the  stages  of  intermediate  processes 
of  manufacture  or  otherwise,  to  the  retail  dealer  or  the  exporting  merchant, 
are  resolvable  into  movements  or  transfers  of  capital.  Now,  transfers  of 
capital  do  not  necessarily  suppose,  nor  do  actually,  as  a  matter  of  fact,  en 
tail,  in  the  great  majority  of  transactions,  a  passing  of  money,  that  is,  bank 
notes  or  coin — I  mean  bodily,  and  not  by  fiction — at  the  time  of  the  trans 
fer.  All  the  movements  of  capital  may  be,  and  the  great  majority  are, 
affected  by  the  operations  of  banking  and  credit,  without  the  intervention  of 
actual  payment  in  coin  or  bank  notes."  (Tooke,  History  of  Prices,  vol.  iii, 
pp.  228-230.) 


MONEY.  207 

struments  drawing  interest  have  a  tendency  to  accumu 
late  in  the  hands  of  capitalists  as  investments,  and  in 
that  case  they  no  longer  act  as  money.  The  true  light, 
therefore,  in  which  we  ought  to  regard  these  various 
forms  of  circulating  credit  is  rather  as  a  va§t  and  in 
exhaustible  fund  of  potential  currency,  at  the  free  com 
mand  of  every  man  whose  exigencies  require  its  aid, 
and  who  has  an  equivalent  to  render,  or  security  to 
pledge,  in  return/'  *  It  is  from  that  inexhaustible  fund 
that  the  community  draw  the  means  to  effect  purchases, 
whenever  they  so  feel  inclined,  without  the  aid  of  either 
coin  or  bank  notes  ;  purchases  that,  by  their  magnitude, 
affect  prices  infinitely  more  than  the  moderate  ones 
effected  with  coin  or  bank  notes. 

The  following  remarks,  and  official  returns  of  the 
Bank  of  England,  extracted  from  the  London  Econo 
mist,  are  as  interesting  as  they  are  conclusive  : 

"  It  is  said  that  it  was  excessive  issues  which  pro 
duced  and  mainly  caused  the  convulsions  of  1825  and 
1837,  and  therefore  they  ought  to  be  restricted.  Here 
is  obviously  a  confusion  between  currency  and  capital 
(credit  ?) — between  the  issues  of  notes  and  the  loan  of 
capital  (credit  ?) — between  circulation  and  credit.  Is 
it  a  fact  that  there  were  excessive  issues  at  those  times  ? 
The  years  1821,  1822,  1823,  and  the  first  half  of  1824, 
were  certainly  not  periods  of  speculation.  Toward  the 
close  of  1824  some  excitement  prevailed,  and  it  in 
creased  until  the  summer  of  1825,  wlren  it  was  at  its 
height.  A  reaction  began  about  September,  and  it 
increased  into  a  panic  or  convulsion  in  the  middle  of 
December,  first,  by  the  suspension  of  London  banks, 

*  On  the  Regulation  of  Currencies,  p.  44. 


208  MONEY. 

ivho  by  law  were  prohibited  from  issuing  notes.  Well, 
how  stood  the  circulation  of  the  bank  during  that 
period  ?  We  find  the  circulation  and  private  securities 

of  the  bank  to  have  been  : 

• 

Circulation.  Private  Securities. 

1821 August £20,295,000  £2,722,000 

1822....  February 18,665,000  3,494,000 

August 17,464,000  3,622,000 

1823....  February 18,392,000  4,660,000 

August 19,231,000  5,624,000 

1824....  February....    19,736,000  4,530,000 

August 20,132,000  6,255,000 

1825 February 20,753,000  5,503.000 

August.......    19,398,000  7,691,000 

"  Is  it  possible  to  recognize  any  proof  of  excessive 
issues  in  these  figures  ?  But  what  is  most  striking,  is, 
that  notwithstanding  the  slight  variations  in  the  circu 
lation  during  the  great  excitement  of  1825,  when  spec 
ulation  was  so  rash,  and  credit  so  indiscriminate,  after 
the  greatest  possible  restriction  had  been  placed  upon 
credit  in  December  and  January,  the  circulation  of  the 
bank  had  risen  on  the  28th  February  to  £25,467,000. 

"  Again,  let  us  examine  the  facts  as  they  existed  in 
1837,  and  prior  to  the  convulsion  of  that  year.  The 
years  1833  and  1834,  and  the  first  half  of  1835,  were 
periods  of  no  excitement  or  speculation.  Toward  the 
close  of  1835,  the  great  American  speculation  set  in, 
and  continued  during  the  greater  part  of  1836.  In 
October  of  that  year,  some  difficulties  began  to  be  ex 
perienced,  which  increased  in  intensity  till  the  middle 
of  1837.  Well,  how  stood  the  circulation  during  those 
years  ?  We  find  it  as  follows  : 


MONEY.  209 

Circulation.          Private  Securities. 

1833 February £10,370,000  £5,450,000 

August 19,629,000  5,999,000 

1834....  February 19,252,000  8,524,000 

August 18,839,000  9,683,000 

1835 February 18,328,000  7,870,000 

August 17,892,000  11,068,000 

1836....  February 18,102,000  11,225,000 

August 18,158,000  13,197,000 

1837....  February 18,232,000  15,056,000 

"  What  proof  is  there  here  again  of  excessive  issues 
having  led  to  the  convulsion  of  1837  ?  On  the  con 
trary,  it  is  curious  that  at  the  moment  when  the  great 
speculation  began,  in  the  autumn  of  1835,  the  bank 
issues  were  at  a  lower  point  than  at  any  time  during 
the  whole  period.  If  we  refer  to  the  bank  returns,  we 
shall  easily  discover  how,  upon  this  explanation,  the 
convulsions  of  1825  and  of  1837  arose.  We  shall  find 
that,  although  the  circulation  continued  almost  sta 
tionary,  the  advances  by  way  of  loans  and  discounts 
rapidly  increased,  and  led  to  the  excitement  and  indis 
criminate  credit  which  in  those  years  led  to  such  dis 
asters. 

"  The  c  private'  securities,  consisting  chiefly  of  bills 
discounted,  were  in  August,  1821,  only  £2,722,000  ; 
in  August,  1824,  they  had  increased  to  £6,255,000; 
and  in  August,  1825,  they  had  further  increased  to 
£7,691,000,  showing  an  entire  increase  of  nearly  £5,- 
000,000  ;  and  this  took  place  without  any  increase  in 
the  circulation  whatever ;  and  yet  all  the  mischief  is 
said  to  have  risen  from  excessive  issues,  without  any 
reference  to  the  true  cause  of  excessive  loans  of  capital 
(credit?)." 


210  MONEY. 

"  The  circumstances  which  led  to  the  speculations 
of  1845  and  1847,  were  very  similar  to  those  of  the 
former  periods,  both  in  relation  to  circulation  and  to 
advances  of  capital  (credit  ?)  upon  securities.  These 
two  elements  in  the  bank  returns  stood  thus : 

Circulation.          Private  Securities. 

1844. . .  .February. . .  .£21,148,000  £5,837,000 

August 21,485,000  7,870,000 

1845.... February....  21,201,000  11,809,000 

August 22,109,000  11,712,000 

1846 February 20,968,000  12,242,000 

August 21,390,000  12,755,000 

1847.... February....  20,151,000  15,819,000 

August 18,828,000  16,923,000 

"  It  is  impossible  to  examine  these  facts,  without 
arriving  at  the  conclusion  that  excessive  issues  had 
nothing  to  do  with  the  panic  of  1847,  but  that,  as  in 
1825  and  1837,  excessive  credits  were  the  sole  cause. 
So  far  from  the  circulation  being  excessive  at  the  mo 
ment  the  panic  arrived  in  September,  1847,  it  was 
lower  than  it  had  been  at  any  time  during  the  whole 
period,  but  the  advances  upon  private  securities  had 
increased  from  £5,837,000  in  1844,  to  £16,923,000  in 
August,  1847." 

"  Acting  upon  the  fallacious  assumption,  then,  that 
all  over  trading  and  consequent  panics  have  been  caused 
by  excessive  issues,  and  that  the  bank  had  it  in  its 
power  to  increase  or  diminish  its  issues  at  pleasure, 
Parliament  was  induced  to  pass  the  act  of  1844,  the 
supposed  effect  of  which  would  be  to  regulate  the  cur 
rency  according  to  prescribed  rules.  But  experience 
has  shown  that,  while  the  bank  has  every  power  over 


MONEY.  211 

the  amount  of  its  advances,  it  has  little  or  none  over 
its  circulation.  Sir  Robert  Peel  appeared  to  think  that 
the  only  means  by  which  bankers  could  issue  notes  was 
by  the  way  of  loans  or  discounts,  and  that  they  had 
therefore  the  power,  by  contracting  their  loans,  to  con 
tract  also  the  circulation,  and  by  extending  their  loans 
permanently  to  increase  the  circulation.  The  slightest 
consideration  will  show  that  both  these  views  were 
equally  unfounded.  The  bank  may  at  pleasure  con 
tract  its  loans  and  discounts  either  by  raising  the  rate 
of  interest,  or  by  refusing  accommodation  ;  but  the 
bank  cannot  contract  the  circulation  at  will,  so  long  as 
it  holds  large  deposits  on  behalf  of  the  public,  which 
they  can  withdraw  at  pleasure.  If  notes  are  required 
for  the  purposes  of  circulation,  they  will  be  withdrawn 
by  depositors  in  spite  of  any  attempt  of  the  bank  to 
contract  their  amount.  Indeed,  it  generally  happens 
when  the  bank  is  contracting  its  credits,  the  circulation 
for  a  time  becomes  larger  in  place  of  smaller.  So,  on 
the  other  hand,  the  bank  cannot  extend  the  circulation 
at  will.  It  may,  indeed,  increase  its  loans  and  dis 
counts  ;  but  if  the  notes  are  not  required  for  circula 
tion,  they  will  immediately  be  returned  upon  the  bank 
for  payment.  The  actual  circulation  at  any  time  is 
determined  by  the  requirements  of  trade  in  order  to 
conduct  internal  exchanges,  and  not  by  the  will  of  the 
issuers  of  notes.  As  long  as  bankers  hold  large  amounts 
in  deposits  belonging  to  the  public,  the  circulation  can 
not  be  reduced  below  the  necessary  amount  required  by 
the  convenience  of  trade,  however  much  bankers  may 
contract  their  credits,  and  as  long  as  the  notes  are 
payable  on  demand,  the  issues  cannot  be  excessive, 


212  MONEY. 

however  imprudent  bankers  may  be  in  extending  their 
credits." 

"  Eank  notes  had,  therefore,  nothing  to  do  with 
these  convulsions.  It  must  be  plain  to  every  intelligent 
mind  that  they  might  equally  have  happened  had  there 
been  no  bank  notes  in  existence,  and  if  the  currency 
had  been  purely  and  exclusively  metallic.  They  were 
caused  by  the  simple  and  clear  fact  that  the  bank  had 
been  led  into  loans  to  an  imprudent  extent." 

The  statistics  in  the  preceding  extracts  prove  that 
the  circulation  of  the  Bank  of  England  declines  in  mo 
ments  of  speculation  and  expansion  of  credits,  while 
it  increases  in  moments  of  panic  and  contraction  of 
credits.  The  reason  of  this  is,  evidently,  that  when 
every  one  has  confidence  in  the  future,  individual  prom 
ises  to  pay  circulate  with  such  facility  that  they  replace 
to  a  certain  extent  bank  notes,  while  in  moments  of 
distrust  each  one  seeks  to  possess  and  to  retain  bank 
notes,  which  are  considered  perfectly  reliable  resources 
af  all  times  and  under  all  circumstances. 


CHAPTER  XII. 

THE  more  closely  currency  is  analyzed,  the  more 
clearly  does  it  appear  that  currency  is  a  strictly  self- 
regulating  machine,  which,  if  left  entirely  free,  will 
exactly  adapt  its  volume  to  the  wants  of  the  community. 
The  currency  can  never  be  inflated  beyond  the  require 
ments  of  the  community  by  paper,  as  long  as  it  can  be 
repaid  to  the  issuers,  and  thus  arrest  the  interest  paid 
for  their  loan.*  The  volume  of  the  currency  is  always 

*  "  On  the  first  establishment  of  a  bank  of  issue,  in  a  district  which  had 
not  been  previously  provided  with  banking  accommodation,  the  command 
of  capital  which  the  banker  acquires  from  the  substitution  of  his  notes  for 
the  money  previously  in  circulation,  and  which  enables  him  to  diffuse  credit 
and  prosperity  throughout  the  neighborhood,  is  very  striking.  And  people 
easily  fall  into  the  delusion  that  there  is  no  limit  to  this  power,  but  that  the 
banker  can  still  go  on  adding  to  his  notes,  and  giving  a  fresh  impulse  to  the 
prosperity  he  has  created,  even  after  the  substitution  has  been  completed, 
and  his  paper  already  fills  the  channels  of  circulation.  Were  this  so,  it  is 
obvious  that  what  is  called  over  issue  would  be  perpetual ;  for  it  never 
ceases  to  be  the  interest  and  desire  of  the  issuer  to  send  out  as  many  notes 
as  the  community  will  receive  from  him.  It  is  quite  idle  to  talk,  as  some 
reasoners  are  in  the  habit  of  doing,  of  bankers  exercising  the  privilege  of 
issue  at  one  time  with  exemplary  moderation,  and  at  another  with  reckless 
imprudence.  There  is  no  such  thing.  Bankers  will  be  more  or  less  pru 
dent  in  the  facilities  of  credit  which  they  afford  to  their  customers,  accord- 


214  MONEY. 

the  amount  held  hy  the  entire  community  in  their 
pockets  or  in  their  cash  tills  ;  it  never  can  exceed  this. 
If  a  country  holds  more  coin  than  is  needed  by  the 
community,  the  surplus  will  lie  idle  in  the  vaults  of 
banks  or  individual  bankers.  It  is  precisely  the  same 
with  paper  currency.  If  banks  issue  notes  beyond  the 
amount  required  by  the  community,  the  excess  returns 
immediately  to  the  bank  of  issue  for  redemption. 
When  banks  accumulate  large  surplus  of  coin,  it  is  no 
evidence  that  the  amount  of  coin  in  the  country  has 
increased.  The  accumulation  may  be,  and  most  fre 
quently  is,  the  effect  of  diminished  ability  or  inclina 
tion  to  exchange  commodities,  and  of  its  natural  con 
sequence,  restricted  commerce. 

Banks  should  never  be  made  to  loan  their  capital  to 

ing  to  the  state  of  their  own  circumstances,  and  those  of  the  times ;  and 
their  advances  must  necessarily  at  all  times  be  limited  by  the  means  of  the 
bankers.  But,  whether  the  bankers'  advances  be  large  or  small,  whether 
the  aspect  of  the  times  be  cheerful  or  disheartening,  it  must  be  equally  his 
policy  to  keep  out  as  large  a  circulation  as  he  can.  What  advances  he 
does  make,  he  will  always  be  anxious  to  make  in  his  own  notes,  because 
they  yield  him  a  profit  such  as  no  other  form  of  issue  yields. 

"  It  may  be  stated,  therefore,  as  a  settled  principle,  that  the  efforts  of 
banks  of  issue  to  extend  their  circulation  know  no  remission ;  that  the 
whole  system,  in  fact,  is  continually  on  the  stretch ;  and  that,  but  for  the 
antagonistic  force  which  is  always  in  action  to  correct  and  repress  it,  the 
overflow  of  notes  would  be  irresistible.  Upon  this  ground  alone,  then, 
there  seems  to  me  to  be  an  effectual  negative  to  the  supposition  that  the 
fluctuations  of  the  bank-note  circulation  depend  on  the  discretion  of  the 
bankers.  A  man  who  has  already  put  forth  his  whole  strength,  has  no 
further  effort  left  to  make.  The  state  of  a  banker,  who  has  already  issued 
every  note  which  those  who  deal  with  him  will  take  from  his  hands,  be 
comes  thenceforth  entirely  passive.  He  cannot  issue  another  till  there  is  a 
fresh  demand.  And  if  there  be  each  time  a  fresh  demand,  I  apprehend 
there  can  be  no  over  issue — no  redundance  which  can  possibly  affect 
prices."  (Fullarton  on  the  Regulation  of  Currencies,  pp.  82,  83.) 


MONEY.  215 

the  state,  nor  invest  it  in  state  stocks,  but  should  inva 
riably  retain  it  in  their  own  hands.  All  laws  ex 
acting  the  deposit  of  state  stocks,  as  security  for  the 
redemption  of  bank  notes,  are  an  error,  based  on  the 
supposition  that  state  stocks  are  more  permanent  in 
their  value  than  other  property.  History  fully  proves 
the  error  of  this  theory.  Nothing  is  so  permanent  in 
its  value,  so  easily  realized  in  moments  of  emergency, 
as  good  commercial  paper,  bearing  two  or  more  signa 
tures,  representing  actual  transfers  of  commodities. 

Banks  of  issue  loan  their  promises  to  pay,  or  bank 
notes,  drawing  no  interest,  in  exchange  for  individual 
promises  to  pay,  drawing  interest.  This  interest  is  the 
profit  of  the  banks,  and  their  reward  for  exchanging 
well-known  paper  for  that  but  little  known,  as  well  as 
for  the  risk  attending  such  operations.  These  ex 
changes  of  credits  on  these  conditions,  are  as  advanta 
geous  to  the  individuals  as  to  the  banks,  for  to  the 
individuals,  the  loan  of  bank  notes  is  as  useful  as  the 
loan  of  a  similar  amount  in  coin  or  capital  in  any  form. 
Banks  of  issue,  as  long  as  they  enjoy  undoubted  credit, 
are  only  forced  to  contract  their  loans  when  the  neces 
sities  of  the  community  force  its  members  to  diminish 
the  amount  of  bank  notes  usually  carried  by  them  in 
their  pockets  or  held  in  their  cash  drawers.  This  only 
occurs  at  long  intervals,  after  bad  harvests  or  great 
over  trading,  and  even  then  not  to  a  great  extent.  But 
confidence  in  the  banks  once  shaken,  the  notes  are 
rapidly  returned,  and  failures  frequently  ensue,  even 
of  institutions  with  ample  means,  which  cannot  be 
realized  rapidly  enough  to  meet,  on  presentation,  all 
the  liabilities  of  the  banks.  As  long  as  the  currency 


216  MONEY. 

is  in  good  credit,  there  can  be  no  danger  to  banks  of 
issue  in  loaning  their  bank  notes  for  short  periods,  and 
on  undoubted  securities.  Short  loans  never  lead  to 
over  trading,  because  the  borrowers  can  only  use  them 
in  operations  which  will  or  can  be  promptly  closed.  All 
the  difficulties-  with  banks  of  issue,  as  well  as  with 
banks  of  deposit,  arise  from  long  loans,  or  from  loans 
on  securities  which  cannot  be  realized  at  maturity. 

Banks  of  deposit  principally  loan  credits  on  their 
ledgers,  bearing  ho  interest,  transferable  by  checks,  in 
exchange  for  individual  promises  to  pay,  bearing  inter 
est.  Every  discount  of  commercial  notes  by  a  bank  of 
deposit  becomes  at  once  transformed  into  deposits, 
although,  in  reality,  the  notes  payable  at  a  future  day, 
discounted  by  the  bank,  are  the  only  deposit  made. 
And  yet  it  is  gen3rally  supposed  that  banks  of  deposit 
lend  their  deposits  !  Banking  on  deposits  is,  like  bank 
ing  on  circulation,  nothing  but  the  substitution  of  a 
well-known  credit  for  one  less  known.  Were  banking 
the  loaning  of  actual  capital,  as  is  generally  supposed, 
it  would  be  infinitely  less  useful  than  it  is.  It  would 
merely  displace  capital — give  to  one  what  is  taken  from 
another — and  this  could  be  done  by  the  individual 
owner  of  the  capital,  without  the  necessity  of  the  ex 
pensive  intervention  of  banking  institutions.  One  of 
the  great  advantages  offered  by  banks  is,  that  to 
the  merchants.,  and  others  keeping  accounts  with  them, 
they  are  precisely  what  the  London  clearing  house  is  to 
the  London  bankers,  and  the  New  York  clearing  house 
to  the  New  York  banks — a  medium  of  offsetting  one 
claim  against  another,  without  the  trouble  and  expense 
of  resorting  to  coin  or  bank  notes  for  every  payment. 


MONEY.  217 

The  banks,  being  the  reservoirs  where  the  community 
keep  all  their  floating  means,  must,  at  all  times,  not 
only  possess  coin  sufficient  to  liquidate  the  balances 
between  themselves,  but  also  to  liquidate  balances  with 
distant  points,  whenever  they  occur,  until  such  time 
as  paper  money  shall  circulate,  like  gold  and  silver, 
throughout  the  entire  world.  Commerce  is  simply  the 
exchange  of  commodities.  The  ebbs  and  flows  of  these 
exchanges  are  almost  as  regular  as  those  of  the  tides, 
and,  when  once  properly  understood,  they  can  almost 
always  be  foreseen  and  provided  for.  The  realization 
of  the  crops  of  a  country  is  the  principal  cause  of  the 
ebbs  and  flows  of  the  currency.  When  the  crops  are 
brought  to  market,  the  currency  must  be  enlarged; 
after  they  are  realized,  the  currency  gradually  contracts 
again  until  the  appearance  of  the  next  crops.  In  a 
country  where  coin  alone  circulates,  the  enlargement 
of  the  currency  can  only  proceed  from  private  hoards, 
gathered  when  the  currency  contracts,  or  when  the  pre 
cious  metals  are  imported  from  other  countries.  Where 
bank  notes  circulate  the  enlargement  is  made  by  the 
issue  of  new  notes,  which  return  to  the  issuers  the  mo 
ment  they  are  no  longer  needed  by  the  community. 

Bad  harvests  are  one  of  the  most  powerful  causes 
of  disturbance  to  banking,  as  well  as  commercial  and 
industrial  operations.*  If  it  be  the  cereal  crops  that 
partially  fail,  the  deficit  must  be  supplied  from  other 
countries,  mostly  in  exchange  for  specie,  because  the 
countries  from  which  the  cereals  are  then  to  be  drawn 

*  "  Except  in  the  single  instance  of  1825,  there  has  not  occurred  within 
the  last  half  century  a  drain  of  gold  of  any  importance,  at  all  commercial 
in  its  origin,  to  which  the  importations  of  corn  have  not  more  or  less  con 
tributed."  (Fullarton  on  the  Regulation  of  Currencies,  p.  152.) 


218  MONEY. 

cannot  at  once  increase  their  consumption  of  the  com 
modities  produced  by  the  country  needing  the  cereals  ; 
for  the  consumption  of  a  community  is  the  result  of 
habits,  acquired  during  long  periods  of  time,  which  are 
not  changed  at  a  moment's  notice  ;  and  even  if  the 
producers  of  cereals  were  desirous  of  increasing  at  once 
'their  consumption  of  those  commodities,  the  country 
needing  the  cereals  could  rarely  furnish  them  in  suffi 
cient  quantities  to  balance,  at  once,  unusually  large  im 
ports  of  cereals,  for  it  takes  time  and  preparation  to 
increase  largely  the  supply  of  any  article.  If,  on  the 
other  hand,  the  deficient  harvest  be  of  products  usually 
exported  abroad  in  payment  of  foreign  commodities, 
coin  must  supply  the  deficit  in  the  exportation  of  prod 
ucts  until  the  importations  of  foreign  commodities  are 
checked.*  In  either  case,  commerce  and  industry — in 
fact,  the  whole  community — will  suffer  from  the  defi 
cient  harvest,  and  bankers  should  be  extremely  cautious 
and  prudent  in  their  operations  in  such  moments,  f 

*  "  As  nothing  can  be  made  by  moving  gold  and  silver,  an  influx  of 
gold  implies  a  great  abundance  and  low  prices  of  all  other  commodities  ;  so 
an  export  of  gold  implies  a  great  scarcity  and  high  price  of  all  other  com 
modities.  An  export  of  gold  takes  place  when  we  have  such  a  diminution 
in  the  stock  of  commodities  generally,  that  it  becomes  unprofitable  to  ex 
port  them  to  a  sufficient  extent  to  pay  for  our  imports." 

•j-  "If  there  has  been  a  failure  of  the  crops,  and,  to  relieve  the  necessi 
ties  of  the  population,  three  millions  of  quarters  of  wheat  are  to  be  import 
ed  from  abroad,  so  much  of  the  capital  of  the  nation  will  have  to  be  sacri 
ficed  for  that  object.  Whether  that  capital  is  transmitted  in  merchandise 
or  in  specie,  is  a  point  which  in  no  way  affects  the  nature  of  the  transac 
tion  ;  the  corn  can  only  be  obtained  in  exchange  for  an  equivalent,  and  that 
equivalent  must,  in  one  shape  or  other,  come  out  of  the  wealth  of  the  coun 
try.  The  loss  is  irretrievable ;  it  is  the  penalty  inseparable  from  a  great 
physical  calamity,  which  must  be  submitted  to  ;  and  if  any  portion  of  the 
penalty  shall  have  been  paid  in  gold,  that  gold  can  only  be  got  back  again 


MONEY.  219 

Still,  even  then,  they  should  not  hesitate  to  loan  on 
ample  and  undoubted  security,  for  it  becomes  import 
ant,  in  such  moments,  that  commerce  and  industry 
should  obtain  facilities  till  they  can  realize,  without 
undue  sacrifice,  the  commodities  they  hold  on  hand  : 
this  requires  time,  and,  meanwhile,  persons  possessed 
of  ample  property  should  not  be  driven  into  bankruptcy, 
because,  temporarily,  property  is  difficult  to  realize. 
Anything  really  useful  to  humanity  cannot  long  remain 
without  demand,  and  forced  sales,  at  great  sacrifices, 
disorganize  industry  and  commerce,  to  the  great  injury 
of  the  entire  community,  and  every  effort  should  be 
made  to  avert  such  results. 

The  evident  duty  of  a  bank  is,  during  the  period 
when  the  currency  contracts,  to  supply  the  natural  de 
mand  for  loans  and  circulation,  but  not  to  seek  to  in 
crease  it  by  offering  to  loan  at  reduced  rates  of  interest, 
or  to  parties  offering  doubtful  securities.  And,  on  the 
other  hand,  not  to  decrease  their  loans  and  circulation 
rapidly  when  they  lose  specie.  Banks,  instead  of  at 
tempting  to  keep  uniform  reserves  of  specie,  should 
rather  see  that  their  reserves  are  always  in  proportion 
to  the  approaching  wants  of  the  community — wants 
which  they  should  freely  supply  as  long  as  it  is  in  their 
power.  To  merchants,  credits  on  bank  ledgers  are  as 
useful  for  their  local  operations  as  the  same  amount  in 
coin,  while  to  the  banks  the  calling  in  of  loans  very 
slightly,  if  at  all,  augments  their  specie  reserves.  Banks 
need  specie  reserves,  beyond  the  small  amount  used  to 

by  a  second  exportation  of  capital,  to  be  created  by  fresh  exertions  of  in 
dustry  and  given  in  exchange  for  it."  (Fullarton  on  the  Regulation  of  Cur 
rencies,  p.  124). 


220  MONEY. 

liquidate  the  daily  balances  between  each  other,  only  to 
liquidate  an  adverse  balance  of  trade  with  some  distant 
point ;  and  they  can  only  increase  their  aggregate  specie 
reserves  from  receipts  from  those  points  where  the  ex 
changes  are  in  their  favor.  When  banks  lose  specie, 
they  should  remember  that  this  is  the  result  of  mer 
cantile  operations  commenced  long  before,  which  no 
action  on  their  part  can  then  arrest  or  cancel  ;  that 
receipts  from  other  points  are  the  only  means  by  which 
the  coin  they  are  losing  can  be  replaced.  Many  persons 
suppose  that  when  coin  is  exported  it  is  invariably  to 
effect  with  it  purchases  abroad,  whereas  it  is  almost 
invariably  exported  to  meet  purchases  made  long  be 
fore.*  Contraction  of  loans  and  circulation  at  home  is, 
then,  worse  than  useless ;  for,  instead  of  strengthening 

*  Mr.  Nicholas  Biddle,  President  of  the  United  States  Bank,  in  an  essay 
published  in  April,  1828,  in  the  National  Gazette,  of  Philadelphia,  said: 
"  The  law  of  a  mixed  currency  of  coin  and  paper  is,  that  when,  from  super 
abundance  of  the  mixed  mass,  too  much  of  the  coin  part  leaves  the  country, 
the  remainder  must  be  preserved  by  diminishing  the  paper  part,  so  as  to 
make  the  mixed  mass  more  valuable  in  proportion.  It  is  this  capacity  of 
diminishing  the  paper  which  protects  it.  ...  The  operation  proceeds 
thus :  by  issuing  no  new  notes,  but  requiring  something  from  your  debtors, 
you  oblige  them  to  return  you  the  bank  notes  you  lent  them,  or  their  equiva 
lent.  This  makes  the  bank  notes  scarcer — this  makes  them  more  valuable 
— this  makes  the  goods  for  which  they  are  generally  exchanged  less  valua 
ble — the  debtor,  in  his  anxiety  to  get  your  notes,  being  willing  to  sell  Jiis 
goods  at  a  sacrifice — this  brings  down  the  price  of  goods,  and  makes  every 
thing  cheaper.  Then  the  remedy  begins-.  The  foreigner,  finding  that  his 
goods  must  be  sold  so  low,  sends  no  more.  The  American  importer,  find 
ing  that  he  cannot  make  money  by  importing  them,  imports  no  more.  .  .  . 
When  the  foreigner  hears  of  this  state  of  things,  he  sends  back  the  coin  he 
took  away.  He  took  it  away  merely  because  your  own  domestic  produc 
tions  were  so  high  that  he  could  not  make  any  profit  in  his  country  by 
taking  them.  But  when  the  news  reaches  him  that  his  productions  are 
very  cheap  in  our  country,  he  will  also  learn  that  our  productions  are  cheap 


MONEY.  221 

themselves,  the  banks  only  reduce  the  value  of  all  com 
modities  selling  to  other  points,  thereby  increasing  the 
adverse  balance  to  be  liquidated  in  coin  ;  besides  which, 
sudden  contractions  produce  panics,  which  universally 
weaken  both  banks  and  their  debtors.*  An  intelligent 

too,  and  he  sends  back  the  coin  to  buy  these  cheap  productions  of  ours, 
.  .  .  Such  is  the  circle  which  a  mixed  currency  is  always  describing." 

u  The  course  of  business  has  been  this:  A  merchant  borrows  from 
the  bunks  and  sends  abroad  $100,000  in  coin,  or  he  buys  bills  from  one 
who  has  shipped  the  coin.  With  these  he  imports  a  cargo  of  goods — sends 
them  to  auction,  where  they  are  sold,  and  the  auctioneer's  notes  given  for 
them.  These  notes  are  discounted  by  the  banks,  and  the  merchant  is  then 
put  in  possession  of  another  $100,000,  which  he  again  ships,  and  thus  he 
proceeds  in  an  endless  chain.  The  constant  tendency  of  banks  is  to  lend 
too  much  and  to  put  too  many  notes  into  circulation."  (Gouge  on  Bank' 
ing,  pp.  52,  53.) 

Here  is  a  man  long  looked  upon  as  the  most  eminent  financier  in  the 
United  States,  who  long  presided  over  one  of  the  largest  banking  institu 
tions  of  the  world,  who  proves  himself  not  only  ignorant  of  the  principles 
governing  banking,  but  also  of  a  knowledge  of  the  modit&  operandi  of 
the  ordinary  operations  of  commerce  ;  and  who  deliberately  recommends  to 
bankers  a  course  of  action  which,  he  says  himself,  will  reduce  the  value  of 
the  assets  of  their  debtors  and  force  them  to  make  sacrifices  !  After  this,  is 
it  surprising  that  commercial  disasters  have  been  frequent  in  the  United 
States,  and  that  the  institution  over  which  Mr.  Biddle  presided  became  it 
self  a  bankrupt,  leaving  not  a  fraction  of  the  wreck  to  be  saved  for  the  un 
fortunate  owners  ?  How  can  paper  money  be  beneficial  when  controlled 
by  men  who  are  entirely  ignorant  of  the  principles  that  govern  it? 

"  A  contraction  of  the  circulation  leads  to  a  general  apprehension  of 
danger.  Hence  the  bankers  and  others  keep  larger  reserves  of  bank  notes 
on  hand,  in  order  to  be  prepared  for  the  worst,  and  thus  the  evils  of  the 
contraction  are  considerably  increased.  That  portion  of  the  notes  of  the 
Bank  of  England  which  is  passing  from  hand  to  hand,  may  be  called  the 
active  circulation.  That  portion  which  is  hoarded,  or  kept  in  reserve  to 
moot  -possible  demands,  may  be  called  the  dead  circulation.  Now  it  is 
quite  certain  that  the  dead  circulation,  while  it  remains  in  that  state,  has 
no  effect  upon  the  price  of  commodities,  the  spirit  of  speculation,  or  the 
foreign  exchanges.  These  are  affected  only  by  the  active  circulation.  In 
seasons  of  pressure,  the  dead  circulation  is  increased  at  the  expense  of  the 


222  MONEY. 

banker  should  neither  become  elated  at  one  moment 
nor  alarmed  at  another  ;  if  he  is  conversant,  as  he 
should  be,  with  the  natural  laws  that  control  commerce 
currency,,  and  banking,  he  will  know  that  they  regulate 
themselves.  Any  attempt,  on  his  part,  to  interfere 
with  the  operations  of  commerce,  only  aggravates  ex 
isting  evils.  Importations  and  exportations  are  made 
by  individuals,  solely  with  a  view  to  the  profit  to  be 
derived  from  them.  Whenever  either  are  in  excess  of 
the  necessities  or  the  means  of  consumption  of  the 
communities  for  which  they  are  destined,  the  expected 
profits  are  turned  into  losses,  and  this  soon  arrests  new 
operations,  until  the  equilibrium  between  supply  and 
demand  be  reestablished,  without  any  intervention  on 
the  part  of  bankers  or  Government.  Supply  and  de 
mand  are  the  natural  regulators  of  commerce  and  in 
dustry,  and,  like  every  natural  law,  they  act  far  more 
beneficially  for  man  than  any  laws  of  his  own  making. 
Unfortunately,  few  persons  have  faith  in  these  laws, 
because  they  have  no  knowledge  of  them,  and  ignore 
the  admirable  results  they  produce  ;  they  therefore  re 
sort  to  human  reglementations,  which  invariably  end  by 
being  injurious  instead  of  beneficial.  The  only  possible 
measure  in  accordance  with  the  law  of  supply  and 
demand  that  can  be  resorted  to  by  banks,  is  to  increase 
or  diminish  the  rate  of  interest  on  loans  in  proportion 
to  the  demand  ;  but  from  this  proper  action  the  Ameri- 

active  circulation,  because  people  hoard  their  money  to  meet  contingencies. 
Hence  we  find  the  pressure  is  often  more  severe  than  the  reduction  of  the 
bank  circulation  would  seem  to  warrant.  But  the  fact  is  that  the  pressure 
is  in  proportion  to  the  reduction  of  the  active  circulation,  and  not  in  pro 
portion  to  the  reduction  of  the  whole  circulation."  (Gilbart,  The  History 
of  Banking  in  America,  p.  96.) 


MONEY.  223 

can  banks  are  debarred  by  our  injurious  usury  laws.  In 
Europe,  at  present,  it  is  only  by  an  increase  or  decrease 
of  the  rate  of  interest  on  loans  that  banks  attempt  to 
interfere  with  tho  supply  or  demand  of  money.* 

Every  general  rise  of  prices  is  solely  produced  by 
confidence,  and  every  general  fall  of  prices  by  want  of 
confidence,  in  the  future.f  When  the  community, 
from  any  cause,  have  full  confidence  in  the  future,  the 
holders  of  property  are  not  desirous  to  realize  ;  J  every 
one  seeks  to  purchase,  and  finds  means  to  do  so,  to  a 
greater  or  lesser  extent,  without  any  assistance  from 
banks,  because  most  commercial  purchases  are  made  on 

*  "  The  true  method  of  regulating  the  paper  currency  is  by  regulating  the 
rate  of  discount.  It  was  by  neglecting  this  that  all  the  great  monetary 
crises  were  brought  on."  (Macleod,  Theory  and  Practice  of  Banking,  vol. 
ii,  p.  302  ) 

f  "  It  is  this  sudden  failure  of  confidence  and  extinction  of  credit, 
which  produces  what  is  called  in  commercial  language  a  '  pressure  on  the 
money  market,'  and  which  causes  money  to  be  '  tight.'  When  money  is 
said  to  be  scarce,  it  does  not  mean  that  there  is  a  smaller  quantity  of  money 
actually  in  existence  than  before  ;  ...  but  a  great  amount  of  credit 
which  served  as  a  substitute,  and  was  an  equivalent  for  money,  is  extin 
guished,  and  the  money  is  called  suddenly  to  fill  the  void."  (Id.,  ib., 
vol.  i,  p.  229.) 

"  It  is,  therefore,  not  the  scarcity  of  money,  but  the  extinction  of  confi 
dence,  which  produces  a  pressure  on  the  money  market ;  and  an  examina 
tion  of  all  the  great  commercial  crises  in  this  country  will  show  that  they 
have  always  been  preceded  and  produced  by  a  destruction  of  this  credit, 
which  has  usually  been  brought  about  by  extravagant  over  trading  and  wild 
speculations."  (Id.,  ib.,  vol.  i,  p.  231.) 

J  "  A  falling  market  will  always  be  well  supplied,  because  people  who 
must  sell  hasten  to  do  so  before  the  price  falls  still  lower,  and  buyers  hold 
aloof,  waiting  as  long  as  they  can,  to  see  the  lowest.  On  the  other  hand,' 
when  markets  arc  rising,  the  case  is  reversed.  The  sellers  hold  aloof, 
hoping  the  price  will  still  be  higher ;  and  buyers  crowd  in,  hastening  to 
purchase  before  the  price  rises  more."  (Id.,  ib,,  vol.  i,  p.  232.) 


224  MONET. 

credit,  and  it  it  is  only  when  the  credits  become  due 
that  the  banks  are  called  upon  for  loans.*  A  general 
demand  naturally  produces  a  general  rise  of  prices,  until 
something  occurs  that  creates  doubt  as  to  the  future. 
Then,  at  once,  nearly  every  one  seeks  to  realize  prop 
erty  ;  purchasers  are  found  with  difficulty,  and  a  gen 
eral  fall  of  prices  ensues.  The  amount  of  coin  or  of 
bank  notes  in  circulation  has  little  or  nothing  to  do  with 
these  ebbs  and  flows  of  prices,  for  at  present  most  of  the 
large  commercial  transactions  are  made  by  means  of 
representatives  of  money  and  commodities,  such  as 
checks  on  banks  and  bankers,  bills  of  exchange,  notes 
of  hand,  credits  on  ledgers,  &c.,  &c.,  and  not  with  coin 
or  bank  notes. "j*  Some  faint  idea  of  the  importance  of 

*  "  A  demand  for  increased  discounts  at  the  Bank  of  England  is  rarely, 
if  ever,  felt  in  the  early  stages  of  a  speculative  tendency,  or  as  a  means  of 
making  purchases,  with  a  view  to  a  further  advance.  It  is  chiefly  when  a 
pause  takes  place  in  the  expected  advances,  and  still  more  after  the  com 
mencement  of  a  fall,  that  the  applications  for  discount  become  urgent,  for 
the  purpose  of  enabling  the  parties  to  meet  engagements  entered  into  some 
time  before,  and  for  which  they  may  be  supposed  to  have  reckoned  on 
funds  to  have  been  realized  by  advantageous  sales."  (Tooke,  History  of 
Prices,  vol.  i,  p.  196,  note.) 

f  "  Excepting  indigo  and  cochineal,  the  prices  of  produce,  home  and 
foreign,  were  lower,  and  in  most  cases  considerably  so,  in  November,  1842, 
when  the  circulation  had  for  four  of  five  months  averaged  £20,000,000, 
than  in  the  preceding  January,  when  it  was,  and  for  some  months  had  been, 
scarcely  over  £16,000,000."  (Id.,  ib.,  vol.  iii,  p.  49.) 

"  When  the  amount  of  bank  notes  in  circulation  had  been  reduced  to 
the  narrowest  limits,  when  the  exchanges  were  low  (high),  and  the  bullion 
in  the  bank  at  a  minimum,  and  when  credit  was  most  restricted,  and  the 
rate  of  interest  unusually  high,  prices,  which,  by  the  currency  theory, 
should  have  been  found  down,  were,  generally,  higher  than  ordinary.  And 
when  the  former  conditions  were  all,  without  exception,  reversed — when 
the  bank-note  circulation  had  been  increased  by  the  addition  of  more  than 
one  third  to  its  previous  amount,  when  the  exchanges  were  high  (low)  and 
rising  (falling),  the  bullion  in  the  bank  greater  in  amount  than  it  had  been 


MONEY.  225 

these  means  of  exchanging  commodities  may  be  formed 
from  the  following  figures  : 

The  annual  exchanges  at  the  clearing  house  of 
London,  which  do  not  comprise  the  enormous  opera 
tions  of  the  Bank  of  England,  are  estimated  at  from 
1,500  to  2,000  millions  sterling  : 

Take  the  average  of  these  figures,  and  we  have. . . .   $8,750,000,000 
The  exchanges  at  the  New  York  clearing  house 
average,  in  ordinary  times,  about  $25,000,000  per 
day  (latterly  they  have  averaged  nearly  double 
that  amount),  say  per  annum 7,750,000,000 

Total  amount  of  annual  exchanges  at  the  London 

and  New  York  clearing  houses $16,500,000,000 

The  entire  present  annual  production  of  the  precious 
metals  is  estimated  at  $200,000,000,  say  about  1} 
per  cent,  of  the  exchanges  effected  at  the  clearing 
houses  of  London  and  New  York.  What  then  must  be 
the  proportion  between  the  annual  production  of  the 
precious  metals  and  the  aggregate  exchanges  of  the 
whole  world  ?  And  what  must  be  the  proportion  be 
tween  any  conceivable  reduction  or  expansion  of  the 
bank  notes  in  circulation,  and  a  moderate  reduction  or 
expansion  of  the  enormous  operations  made  with  paper 
representatives  of  commodities  and  money  ?  When 

for  many  years,  and  still  increasing,  when  credit  was  almost  unlimited,  and 
the  market  rate  of  interest  had  for  two  years  barely  exceeded  two  per 
cent,  per  annum,  or  less  than  half  its  previous  amount,  prices,  instead  of 
being  higher,  were,  with  hardly  a  solitary  exception,  considerably  lower 
than  at  the  former  period." 

"  No  amount  of  ingenuity  of  comment  could  add  to  the  force  of  tho 
argument  against  the  supposed  influence  of  the  amount  of  the  bank-note 
circulation,  or  of  the  rate  of  interest  upon  prices,  conveyed  by  a  simple 
statement  of  these  facts."  (Tooke,  History  of  Prices,  vol.  iii,  pp.  61,  62.) 


226  MONEY. 

we  look  at  these  figures  we  can  no  longer  wonder  that 
the  large  influx  of  gold  from  California  and  Australia 
has  produced  no  permanent  effect  on  prices,*  and  that 
the  expansions  and  contractions  of  bank  issues  have  no 
permanent  effect  on  the  prices  of  labor  and  commodi 
ties. 

If  the  immense  operations  of  commerce  and  indus 
try  are  now  effected  more  easily  and  more  economically 
with  paper  representatives  of  money  and  commodities 
than  with  money  itself,  is  it  not  evident  that  bank 
notes  can  successfully  be  made  to  replace  coin  in  all 
transactions  ?  That  the  substitution  of  paper  money 
for  coin  is  exceedingly  advantageous  to  humanity  there 
can  be  no  doubt,  provided  the  paper  money  be  left  to 
the  untrammelled  management  of  private  interest.  The 
metallic  currency  of  the  country  is  so  much  capital 
rendered  unproductive  in  order  to  increase  the  produc 
tiveness  of  the  remainder.  If  an  instrument  less  costly 
can  effect  the  exchanges  as  well  as  coin,  the  capital  at 
present  invested  in  coin  will  at  once  become  available 
for  productive  employment,  besides  which  the  wear  and 
tear  of  the  coin  will  be  economized.  The  coin  in  the 
world  was  estimated  by  Humboldt  in  1827  at  £344,- 
000,000  or  $1,720,000,000.  This  amount  must  have 
been  greatly  increased  since  1827,  but  6  per  cent,  for  wear 
and  tear  and  interest,  on  even  that  amount,  is  $103,- 

*  "  It  is  impossible  to  affirm  that  the  range  of  general  prices  has  been 
sensibly  raised  by  the  mere  operation  in  the  form  of  metallic  money  of 
even  the  £160,000,000  or  £170,000,000  of  new  gold  introduced  into  the 
commercial  world.  All  the  instances  of  an  important  variation  in  prices, 
comparing  1857  with  1851,  admit  of  being  accounted  for  by  circumstances 
affecting  the  supply  or  the  demand."  (Tooke,  History  of  Prices,  vol.  vi, 
p.  224.) 


MONEY.  227 

200,000  per  annum,  which  would  become  available  for 
the  well  being  and  future  progress  of  humanity,  the 
moment  that  paper  money  successfully  and  entirely  re 
places  the  precious  metals  as  a  circulating  medium. 
That  this  desirable  result  will  be  attained  seems  cer 
tain.  It  is  a  mere  question  of  time,  and  will  depend 
greatly  on  the  general  intelligence  of  humanity,  and 
still  more  on  the  general  recognition  of  the  important 
truth  that  the  ivdl  being  and  progress  of  humanity  is 
entirely  dependent  on  individual  effort  and  intelligence, 
and  not  on  the  acts  of  governments  (protection  to  life, 
liberty,  and  property  alone  excepted)  ;  for  until  that 
truth  be  admitted  and  acted  upon  by  governments, 
they  will  continue  to  attempt  to  control  the  issues  of 
paper  money,  which  will  prevent  humanity  from  deriv 
ing  from  this  admirable  instrument,  all  the  benefits  it 
is  capable  of  conferring. 

If  it  were  once  generally  and  clearly  understood  that 
money  is  a  mere  instrument  that  facilitates  the  ex 
changes  of  commodities  and  services,  and  that  the 
great  desideratum  of  a  proper  circulating  medium  is,  not 
its  redemption  in  gold  and  silver,  but  its  redemption  by 
(which  means  its  acceptance  in  exchange  for)  commodi 
ties  and  services,  the  forced  redemption  of  bank  notes 
in  coin  might  be  entirely  dispensed  with,  and,  along 
with  specie  redemption,  will  inevitably  disappear  finan 
cial  panics  such  as,  heretofore,  have  so  frequently  oc 
curred,  often  in  the  midst  of  an  unusual  abundance  of 
commodities,  solely  from  fear  of  an  inadequate  supply 
of  money,  of  an  instrument  only  useful  as  a  means  of 
obtaining  the  very  commodities  of  which  there  exists 
a  glut  !  Can  anything  be  more  absurd  than  to  be  panic 


228  MONEY. 

stricken  from  fear  of  the  lack  of  a  symbol,  when  we 
possess  in  abundance  the  very  things  it  symbolizes  ? 
Whenever  bank  notes  shall  cease  to  be  redeemable  in 
coin  on  demand,  they  will  be  freely  issued  to  those  who 
will  pay  interest  for  them  and  furnish  ample  security 
for  their  return  within  a  specified  time.  The  return  of 
bank  notes  in  repayment  of  loans  is  an  ample  and 
proper  means  of  redeeming  them,  and  will  always  pre 
vent  the  currency  from  becoming  redundant.  There 
will  then  always  be  an  adequate  supply  of  money — 
prices  will  become  regular,  as  they  will  be  solely  con 
trolled  by  cost  of  production  and  supply  and  demand 
— and  we  shall  no  longer  see  commodities  sacrificed  and 
commerce  and  industry  disorganized,  merely  because 
the  controllers  of  money  refuse  to  furnish  a  supply  ad 
equate  to  effect  the  current  exchanges  of  commodities 
and  services. 

Is  not  this  a  result  to  be  desired  ?  And  can  it  be 
attained  by  any  other  means  than  by  the  general  dis 
semination  of  a  correct  knowledge  of  the  natural  laws 
that  govern  so  perfectly  and  so  beneficially,  not  only 
money  and  currency,  but  all  other  things  that  contribute 
to  the  well  being  and  progress  of  humanity  ;  laws  that 
form  the  subject  matter  of  the  science  of  Political 
Economy  ? 


THE  ENP, 


THIS  %BOO£  is  DUE  ON  THE  LAST  DATE 

STAMPED  BELOW 

AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  SO  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


TSPfr 


LD  21-100m-7,'39(402s) 


18389 


M  9790 


Ml 


THE  UNIVERSITY  OF  CALIFORNIA  LIBRARY 


